A Reader Comments on My Earthquake Insurance Article
An article I wrote several weeks ago, “Will You Lose Your Home’s Equity in an Earthquake?,” made the local papers this weekend. It discusses the fact that few buyers seem concerned about losing their property’s equity in an earthquake as evidenced by the fact that so many homes are not retrofitted and lack earthquake insurance. In fact, insurance company statistics indicate that only 12% of all California homeowners have the additional insurance that will cover them in the event of an earthquake.
My piece mentions how rates for earthquake insurance have gone from very expensive to ridiculous. A reader emailed me saying that his earthquake insurance “premium” (an appropriate word for this outrage) just went from $1600 to $4600 a year. He went on, “I am the Treasurer of a small condo association in San Francisco, and last week was notified that our building’s master condo policy [with a large insurer for 20 years] is having the earthquake coverage deleted in 60 days at the next renewal date.” His insurance company “will be glad to continue its fire and liability coverage. This is a scary situation for the small property owner.”
Sounds like we are heading for a situation similar to what happened in California after the 1994 Northridge earthquake. At the time, insurance firms were required to offer earthquake coverage if they provided homeowner’s insurance. In response, almost all (93%) chose to desist from offering home insurance in the state. That led, in 1996, to the establishment of the California Earthquake Authority because banks will not lend on homes unless they have enough insurance to cover the loan amount.
This should matter not only to homeowners with significant equity in their property, but to all citizens of California. With so few houses covered before rates skyrocketed, it is reasonable to expect even fewer will have adequate insurance in the future. A large earthquake in the Bay Area will harm not only individual homeowners, it will likely ravage the local and state economy as well. Let’s pray it does not happen any time soon. Our flat broke state could not afford it.