This story was reported for the San Diego News Network on April 16, 2010.
The Easter Sunday earthquake and the series of aftershocks that have unnerved thousands of San Diegans may not have directly affected the earthquake insurance business, but they have certainly served as a “wake up call,” said industry analysts.
That wake up call has caused an influx of queries to insurance agencies and has forced Southern Californians to ask themselves whether earthquake insurance is a worthy investment.
“I think any earthquake serves as a reminder that an earthquake can happen anytime or anyplace that’s near a fault line,” said California Earthquake Authority CEO Glenn Pomeroy. “The 7.2 was close enough to San Diego to result in significant damage [to the region] and definitely got people’s attention, even if it didn’t result in big losses…it had people asking, ‘What are the risks of an earthquake? Do I need to buy earthquake insurance? Can the next one be even more severe? Am I comfortable?’”
With only 12 percent of homeowners in California having earthquake insurance, leaders said they are expecting a minor increase in purchasers from the 7.2-magnitude earthquake that shook Southern California, though it’s still “too early” to tell.
According to Pomeroy of the California Earthquake Authority, a state organization that provides and mitigates earthquake insurance, his guess on the rise in earthquake insurance from the Easter quake is based on past history. After the 1994 6.7-magnitude Northridge quake, Pomeroy said there was a “big jump” in the number of purchasers. In fact, prior to Northridge, the number of purchasers was at 25 percent, compared to 36 percent in the days after the quake. Since 1994, though, that number has slowly dropped, Pomeroy said.
Though the earthquake may have frightened many Californians into purchasing insurance, many insurers provided “inexpensive insurance coverage” because they were unsure of how to price it — which then led to the creation of CEA in 1996.
The Northridge earthquake may be a perfect example of how a natural disaster could affect the insurance business, but State Farm insurance agent and CEA advisor Wayne Coulon doesn’t believe the recent Southern California quakes will not have any major consequences.
“The earthquakes that we’ve had recently in Southern California are nothing that would have great effect,” he said.
Coulon also said it’s still “very premature to make any statement at all to say the rates would be affected by the recent earthquakes” or project the amount of losses.
But one thing is clear to Coulon: The quakes left many people talking.
“The earthquake did generate a great deal of interest, particularly for those who aren’t native to Southern California and aren’t used to it,” he said. “At the same time, as time goes by, people get that bill and haven’t had an earthquake in awhile, and the old it-can’t-happen-to-me-attitude — and the percentage of purchasers slowly decline.”
According to CEA, 100,725 homeowners in San Diego County have earthquake insurance. Of that number, 3,778 are renters, 3,685 are mobile homes, 16,119 are condos and 77,143 are homes. Because a major fault line isn’t near most San Diegans, Pomeroy said the average rate of earthquake insurance is $290 annually, compared to $831 in the rest California — with some of the more costly insurance in Los Angeles and the Bay Area.
Though pricing may be an issue, federal lawmakers are working on pushing two bills through Congress — SB 886 or HR 4014 — which would make earthquake insurance more affordable.
When it comes to purchasing earthquake insurance, there are other factors to consider besides money, said Bruce Westermo, SDSU professor and assistant dean for student affairs in the school of engineering.
He said one must consider the “likelihood of a damaging earthquake when assessing your home” and the “seismic resistance of your home.”
“The seismic building codes have changed over time, so the latter can usually be thought of in terms of your home’s age,” he said. “Other conditions can come into play; for example, a home perched on any of our local cliffs would put it at higher risk regardless of its age.”
Considering these factors is a homeowner’s best bet, as relatively little is known about earthquakes, said SDSU professor of geological sciences and seismologist Kim Bak Olsen.
Olsen said one can only predict the probability of different size earthquakes, and seismologists know that there is a 40 to 60 percent chance that an earthquake the size of what we saw on Easter will occur in the region in the next 30 years. But probabilities can also change over time. For example, seismologists believed there was a high chance of an earthquake just as large occurring within days of the Easter earthquake on the Lake Elsinore fault, but that was not the case.
“There was an increased probability, but since we didn’t see it happen, the probability has gone way down,” he said. “We are back to where we were before. We know that these earthquakes can trigger others and we did see many small earthquakes.”
In the end, Westermo said there is “no simple yes or no answer” to the question of whether San Diegans should invest in earthquake insurance.
“But I believe that it would not be a good investment for everyone.”
Hoa Quach is the political editor for the San Diego News Network.