East Coast Quake Reminder of Need for Earthquake Insurance

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Aug 23, 2011, 07:16 ET

I.I.I. Provides Overview of Insurance Coverage for Earthquakes In the U.S.

NEW YORK, Aug. 23, 2011 /PRNewswire-USNewswire/ -- The earthquake that shook the East Coast of the United States on Tuesday is a vivid reminder that people in many parts of the U.S. face risks from earthquakes and should consider purchasing earthquake insurance coverage, according to the Insurance Information Institute (I.I.I.).

EARTHQUAKES AND INSURANCE
Earthquakes are not covered under standard U.S. homeowners or business insurance policies. Coverage is usually available for earthquake damage in the form of a supplemental policy to homeowners or business insurance.

Earthquake insurance provides protection from the shaking and cracking that can destroy buildings and personal possessions. Coverage for other kinds of damage that may result from earthquakes, such as fire and water damage due to burst gas and water pipes, is provided by standard homeowners and business insurance policies in most states. Cars and other vehicles are covered for earthquake damage by comprehensive insurance, which is optional and also provides protection against flood and hurricane damage as well as theft.

Earthquake insurance policies often carry a deductible, generally in the form of a percentage rather than a dollar amount. Deductibles can range anywhere from 2 percent to 20 percent of the replacement value of the structure. This means that if it costs $100,000 to rebuild a home and the policy had a 2 percent deductible, the policyholder would be responsible for paying the first $2,000.

In California, homeowners can also secure coverage from the California Earthquake Authority (CEA), a privately funded, publicly managed organization. The CEA offers homeowners dwelling coverage deductibles of either 10 or 15 percent. The CEA coverage limit is the insured value of the home as stated on the companion homeowners insurance policy.

"Everyone, no matter where they live, should contact their agent or company representative to make sure that they have the right type and amount of insurance," said Jeanne M. Salvatore, senior vice president of Public Affairs and consumer spokesperson for the I.I.I. "All Americans also need to have an up-to-date home inventory; an evacuation plan; and to protect their home from the disasters that pose a risk to their personal safety and property."

U.S. EARTHQUAKE HISTORY
The New Madrid earthquake of December 1811, one of the largest in U.S. history, had its epicenter in Missouri, and ended up ringing church bells in Boston, more than 1,000 miles away. The New Madrid Fault zone lies within the central Mississippi valley extending from northeastern Arkansas through southeastern Missouri, western Tennessee, Kentucky and southern Illinois. Indeed, four small quakes in mid-December 2009 were felt in Arkansas, Missouri, Tennessee and Kentucky, even though the highest magnitude was only a 3.1. No injuries or property damage were reported in the U.S. from the December 2009 seismic activity.

Since 1900, earthquakes have occurred in 39 U.S. states. Minor earthquakes, for instance, struck states such as Illinois and Nevada in 2008. There has not been a major quake on the U.S. mainland, however, since the 6.7 magnitude Northridge, California, event in January 1994.

Nonetheless, California remains the U.S. state most at risk of a major earthquake. A huge quake is more likely in Southern California than in Northern California over the next 30 years, according to a 2008 study compiled by experts from the U.S. Geological Survey, USC's Southern California Earthquake Center and the California Geological Survey. The study also predicted, in looking at the 30-year probability of one or more events greater than or equal to the magnitude of the Northridge quake hitting California, that there is a 99 percent chance that at least one earthquake meeting that criterion will occur.

The 1994 Northridge earthquake and the 1989 6.9 magnitude Loma Prieta quake that struck the Oakland-San Francisco area during that year's World Series were two of the three most costly earthquakes in U.S. history as defined by insured losses. In 2010 dollars, Northridge caused an estimated $22.6 billion in insured losses, placing it first on the list, while the Oakland-San Francisco quake resulted in insured losses totaling a little over $1.6 billion, ranking third in that category. The San Francisco earthquake of 1906 ranks as the second costliest in U.S. history, causing insured losses equal to $4.0 billion in 2009 dollars. Yet, more than 16 years after the Northridge, California, earthquake, only about one in eight California residents have their homes or businesses insured for earthquake-caused property losses.