Ask your neighbor and an underwriter the following question and you’ll get two different answers: “What do you think when you hear the term 1-in-1,000 year event?”
The underwriter will say “it’s a severe event.” Your neighbor will say, “It won’t happen in my lifetime.” So why should your neighbor buy earthquake insurance?
This lack of understanding highlights the problem of underinsurance. Even with relatively recent events like the 6.0-magnitude tremor in Napa, California to remind us, the gap between the insured and uninsured is widening. About 10% of California homeowners have earthquake insurance despite the fact that 80% live in an earthquake zone. Nationally, only 7% carry earthquake insurance – down from 10% in 2013.
The consequences of underinsurance are well documented: the inability to recover and rebuild, business failures, mortgage defaults and government intervention – these costs are ultimately shouldered by the taxpayer.
Now, let’s ask another question. Ask most people why they don’t have earthquake insurance and you’ll probably get these answers:
- It’s too expensive
- The deductible is more than the likely damage
- It’s not a priority when the family budget is tight
- No one told me it’s available
It’s easy to turn a blind eye to a seemingly remote event, yet ask the experts and they'll agree – it's a case of when and not if.
Clearly, some education is in order as there are home and business owners who likely aren't even aware that they live in areas that have had earthquakes in the past and could have them again. Out of sight unfortunately often means out of mind.
The California Earthquake Authority (CEA) is one of a number of our clients making sure earthquakes get the attention they deserve. Created when most insurers stopped writing coverage after the Northridge quake of 1994, this publicly managed, privately funded, not-for-profit provider of earthquake insurance offers best practices in raising awareness. Check out their user-friendly website californiarocks.org, innovative marketing and agent engagement. Here are a few of their consumer-friendly products and incentives:
1. Recognizing that a policyholder’s out-of-pocket expense needs to be better aligned with the exposure, the CEA wants to offer a wider choice of deductibles ranging from 5-25%.
2. It also plans to extend larger premium discounts for retrofits that meet earthquake standards and “higher sublimits for energy-efficient properties, chimneys and glass breakage, as well as higher limits for personal property and (still at no deductible) Loss of Use/Additional Living Expense coverages” – all subject to regulatory approval.
3. The CEA also worked with the legislature and governor to approve changes in the way residents learn about earthquake insurance. Insurers are now required to use clearer language and send annual reminders of the availability of insurance to their customers– known as the mandatory offer.
4. Finally, the CEA is teaming with the Governor’s Office of Emergency Services to offer grants to qualified homeowners to strengthen their foundations.
The CEA, a valued Swiss Re client, should be praised for their efforts to insure more California residents. There are actuarially sound ways to narrow the gap, and we’re proud to work with them to do just that. Now, please help us spread the word so others get the message.
Category: Climate/natural disasters: Earthquakes
Location: California, United States