Earthquakes are in the news lately, from Nepal – where a severe earthquake has killed thousands and caused massive damage – to Oklahoma, where water injections related to oil and gas drilling are being blamed for an uptick in low-magnitude quakes. In Canada, a 6.1 magnitude earthquake shook northern British Columbia in April; the area is sparsely populated and, fortunately, no damage or casualties have been reported.
Although insuring against earthquakes would seem like a logical precaution in high risk areas such as California, only one out of eight Californians has earthquake insurance. High premiums and, in particular, high deductibles (from 10 to 30 percent of the insured value of the house) seem to deter homeowners from adding earthquake coverage. The story is different in British Columbia, where earthquakes are less frequent and premiums are lower; an estimated 65 percent of homeowners in coastal areas carry earthquake insurance.
Homeowners in high risk areas in the U.S. and Canada who don’t carry earthquake insurance may be making the (erroneous) presumption that the national government will step in and provide relief in the event of severe damage. Before the next “big one” hits, it might make sense for P&C insurers – or their industry associations – to educate consumers about the risks and realities of earthquakes and earthquake insurance. Working with state and local governments, insurers can also promote stricter building codes, better construction materials and safer designs to limit damage.