The state of Oklahoma’s problematic earthquake insurance market

The state of Oklahoma’s problematic earthquake insurance market

The state of Oklahoma’s problematic earthquake insurance market With earthquake frequencies rising in Oklahoma, more homeowners are scrambling to secure insurance against possible tremor damage. Interest in earthquake insurance swelled so much in recent time, however, that—according to observations by Forbes—it “has outpaced the market’s natural ability to evolve.”

The United States Geological Survey revealed that there was a record number of 890 earthquakes of 3.0 magnitude or greater in 2015, compared to just 12 of such tremors between 2000 and 2008.

“It’s a fascinating place to be in,” Oklahoma Department of Insurance Commissioner John Doak told Forbes. “I believe this is a unique time in Oklahoma history.”

Originally, the state’s insurance regulators employed a laissez-faire approach to the earthquake insurance market, allowing insurers to raise or lower their rates at will. While insurers had to notify the insurance department within 30 days of a rate change, they did not need to seek approval before passing the rate adjustments. This meant that policyholders could be charged a new rate even before the insurance department could be notified.

Things did not work out as planned, however. More Oklahomans opted for renters’ insurance, and only a handful of insurers dominated the markets.

Out of the 119 insurance companies that sell earthquake insurance in Oklahoma, only four accounted for 60% of the earthquake insurance market in 2015, according to S&P Global Market Intelligence. Doak also noted that the same companies even planned to raise their rates by as much as 300%.

Regulators eventually held a hearing on the matter on May 24. Determining that the rate changes were unjustified and the market “noncompetitive,” regulators imposed that all rate changes must first be filed and approved through them.

The increased regulatory requirements did not sit well with some.

“Will more regulation help or hurt consumers in the long run? We believe that increased regulation will do more harm than good,” said Property Casualty Insurers Association of America Vice President of State Government Relations Joe Woods.

More worryingly is that Oklahomans are discovering a gap in their earthquake insurance.

Typical earthquake policies protect policyholders from catastrophic losses, hence their high deductibles. At around 10% or more of a policy’s coverage limit, the deductibles usually surpass $15,000. An average homeowners insurance deductible is $500 to $2,500.

The problem, however, is that homeowners in Oklahoma are suffering from frequent smaller earthquakes over time instead of a single catastrophic event—putting them in an insurance coverage gap.

State regulators are working with insurers to offer consumers lower deductibles while keeping affordable premiums.

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