Earthquake Insurance

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Many Virginians can remember where they were at 1:51 pm on August 23, 2011. That is when Virginia was rocked with its largest earthquake in a century. The epicenter was located outside of Mineral in Louisa County, but it could be felt along the east coast from Georgia to Canada.  When the shaking began, the idea that it may be the result of an earthquake was not the first thing that came to mind.  After all, our region is not known for earthquakes like California or Alaska. 

However, after the shaking stopped, people began looking around to see what, if any, damage had been done to surrounding structures including their own homes. Those who unfortunately found damage to their homes also found out that normal homeowner insurance policies do not cover earthquake related damages. In order to be covered for earthquake losses, an earthquake insurance endorsement must be added to the home policy or a separate earthquake insurance policy needs to be purchased on the side. Insurance companies received a flood of calls with questions in regard to earthquake insurance after the earthquake, so much so that insurers put a freeze on issuing new earthquake policies after the quake and many wouldn’t lift the freeze for 30, 60, or 90 days.
 
Virginia earthquake insurance is not a big segment of the insurance industry, accounting for barely $10 million in premiums in 2009 and covering just two percent of Virginia homes. Even in an earthquake prone area like California, only about 1 in 8 homeowners are covered from earthquake loss. Earthquake insurance normally covers damage from shaking or trembling of the earth, but routinely excludes losses caused by landslides, erosion, tsunami, or volcanic eruption, even if an earthquake caused them to happen.
 
Earthquake insurance deductibles work differently that traditional deductibles in that there is not a dollar amount assigned to them. Instead, the deductible is a percentage of the insured amount. Usually two percent is the lowest deductible an insurance company is willing to extend, so if the home is worth $200,000 and has $200,000 coverage then there would be a $4,000 out-of-pocket deductible for the homeowner to pay before the insurance company begins to cover losses. Two percent deductible is on the low end, with policies routinely going up to 10, 15 or 20 percent. On this same home, that 20 percent deductible turns into $40,000 the homeowner pays first before insurance kicks in.
 
The level of deductible greatly swings the premium on earthquake insurance. Premiums could start at $0. 50 per $1,000 insured and go up from there as the deductible falls. Premiums in Virginia are roughly a sixth of that for the same coverage in California, where earthquake insurance is more common. In addition to location, deductible percentage and coverage amount, the construction of the structure also will have an impact on the premium. Earthquakes tend to damage masonry buildings, especially unreinforced masonry than their lumber-built counterparts. A brick home may pay roughly 20-80 percent more due to the increased likelihood of an insurance claim. 
 
What is the likelihood of another sizeable earthquake striking Virginia? Virginia is considered to have a moderate earthquake risk in that there is a 10-20 percent chance of a magnitude 4. 75 or higher on the Richter scale every hundred years. With this reading area being close in proximity to the Central Virginia Seismic Zone, which generated last year’s quake, there is a good chance that it would be felt here.
 
In determining if earthquake insurance should be added to the existing home insurance, homeowners need to balance their risk level with the premium price. If you wish to discuss earthquake insurance in more detail, please contact your current home insurer who should be happy to answer your questions.  Since the earthquake occurred less than a year ago, they no doubt are well versed on the subject!
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