Across the country, take-up rates on earthquake insurance are dramatically low. In California, just 10% of homes are insured for quake damage. The reason? According to state-run insurer California Earthquake Authority, half-hearted sales pitches aren’t cutting it.
To counteract the complacency, the Authority is planning an $11 million advertising campaign featuring harrowing, graphic images from the 2014 Napa Quake. The hope is that the campaign will bring home to consumers the devastation that can be caused by earthquakes and make them more seriously consider purchasing protection.
“I don’t think we have been doing a good enough job [getting the message across] to California consumers that the risk of earthquakes is very real – that a damaging earthquake is going to happen again,” California Earthquake Authority Glenn Pomeroy told the Wall Street Journal.
The Authority is also implementing rate decreases of an average 10% and it is most likely that, rather than any scare tactics, that will get home and business owners considering earthquake insurance.
The average earthquake policy in California in 2013 cost $676 a year, according to the state Department of Insurance, and policies often have a deductible of 10% or 15%. That means an individual with a $175,000 home with a 15% deductible would have to pay $112,500 out of pocket before getting any relief.
Faced with such daunting figures, many choose to go without a policy.
And the high costs and low take-up rates aren’t exclusive to California. In the Northwest, just 10% to 15% of property owners have the necessary coverage to claim damages in the event of an earthquake, and increased publicity on earthquake damage has done nothing to improve purchasing rates.
“You see an uptick in interest, but the actual [business] doesn’t rise much,” says Karl Newman, president of the Northwest Insurance Council. “Many times people say, ‘I’m not going to get earthquake insurance because it’s too expensive and the deductibles are too big.’”
With such a pricing barrier, it’s hardly surprising that insurance agents say they have difficulty selling the earthquake insurance product. However, Newman says taking measures like retrofitting homes can shave off about 40% to 50% on premiums.
And if clients still can’t afford a policy, there is hope that some other damages resulting from a quake may be covered by homeowners and business policies.
Mike Levine of Richmond, Va.-based Hunton & Williams LLP spoke with Insurance Business America after the Napa quake, and noted that depending on the order and extent of damage to a property, insureds can potentially find relief.
“You can’t put everyone into the same basket following an earthquake. It really comes down to what each policyholder’s situation looks like,” said Levine, who has been practicing insurance coverage litigation and counseling since 1996. “Some properties may have suffered no direct earthquake damage, but did receive some kind of secondary damage from flooding, fire or anything else triggered by the earthquake.”
