California is home to about two-thirds of our nation's
earthquake risk, with 2,000 known fault lines throughout the state
producing approximately 37,000 earthquakes a year, averaging 102
per day, according to the California Earthquake Authority (CEA).
The CEA is a nonprofit organization that provides residential
earthquake insurance and encourages Californians to reduce their
risk of earthquake loss.
According to a 2008 study by the Uniform California Earthquake
Rupture Forecast (UCERF), there's more than a 99 percent
probability that Californians will experience one or more magnitude
6.7 or larger earthquakes in the next 30 years, potentially capable
of causing extensive damage and loss of life.
It's scary then that
only 11.3 percent
of homeowners in California have
and just 6.67 percent of businesses carry coverage, says Pete
Moraga, a spokesperson for the Insurance Information Network of
Californians appear determined to remain unprepared for the
eventual "Big One." So why is that?
It depends on who you talk to, says Moraga. "One reason is that
it's been a pretty long time since we've seen a major earthquake in
California that has hit close to an urban area." The last was the
6.7 magnitude Northridge earthquake in 1994, hitting Reseda, a Los
When you haven't had an earthquake hit an urban area in a long
time, people tend to forget about the scope of devastation and the
problems that occur afterwards.
"Some people will push away the facts and either ignore them, or
rationalize them," says Steve Orma, a San Francisco-based clinical
psychiatrist. "They might tell themselves, 'It won't happen to me,'
or 'God will protect me.' Or [they] hold a fatalist view of
'Whatever happens, happens -- I have no control over it.' They
might also believe that even if an earthquake does hit, they'll be
fine, which may or may not be true."
The longer the region goes without an earthquake, the less
likely Californians are to prepare for one. A 2006 Insurance
Information Network of California study found that between 60 and
69 percent of respondents across the state said that they are not
prepared for the threat of a mudslide (often a consequence of
earthquakes) at their homes or businesses.
The cost of earthquake insurance naturally plays a role in
Californians' decisions not to buy coverage, especially in the
current economic climate. A premium estimate for a
2,700-square-foot two-story wood home -- valued for insurance at
$750,000 -- in the heart of San Francisco, a high-risk area, could
be as high as $4,300 per year, and that's on top of a regular
"Whereas that same house in the Inland Empire, near L.A., say
San Bernardino or Riverside, would be half that expense," says
The CEA has a premium estimator on its
The climate of earthquake insurance
Right now the earthquake insurance market in California is more
competitive than ever. There are more policies available and more
insurers to choose from. Some years ago the CEA was the only place
to obtain earthquake insurance, but now there are more private
companies offering policies. What's more, because of earthquake
research, scientists are able to pinpoint higher-risk areas and
thus make premiums more accurate.
The policies have also vastly improved. In the past they offered
bare minimum coverage, typically with 15 percent deductibles and
very limited coverage for contents and additional living expenses.
"Now you can actually buy policies with 10 percent deductibles, and
since July 1, the CEA started a new program called Your Choice
where you can actually tailor-make policies," says Moraga.
You can choose the amount for just the structure, structure plus
contents and additional living expenses or any combination of
coverage based on need and finances.
Like nothing we've seen before
The financial ripple effects of a major urban area being hit by
a substantial earthquake will be like nothing we have seen
"If more than 88 percent [of homeowners] don't have policies,
who's going to pay for the devastation if we have a big one?" asks
Moraga. After Hurricane Katrina, the image of the federal
government coming in as a knight in shining armor was
Homeowners should know that FEMA is fairly limited in what it
can provide. Grants tap out at about $31,000, which is not likely
enough to rebuild or repair substantial damage to a home; plus
people not everyone will qualify.
Just because you lost your home and don't have insurance doesn't
mean you will automatically receive a grant.
The Small Business Administration provides low-interest
, but those have to be paid back and are also determined by credit
worthiness and income. If you already have a significant mortgage,
you may not qualify for a substantial rebuilding loan.
In addition to having millions of people without homes or jobs,
large parts of the country could come to a complete halt. A
catastrophic earthquake in California would have a national impact
including disruptions to supply lines, shock to financial markets
and a drain on the insurance system.
"People may also believe that their family, friends, neighbors,
or charity will take care of them, which may be true. Following
Hurricane Sandy, millions were donated to the Red Cross to aid
disaster victims. Of course, charity (and most friends and family)
aren't going to buy you a new house," says Orma.