Earthquake Insurance: California's Choice

Despite California being home to 90% of the nation's earthquakes, only around 10-13% of Californians have earthquake insurance. This is due to several misconceptions on the part of consumers, such as the belief that earthquake damage is covered by their homeowner's policy or that the government will provide financial assistance in the event of a disaster. In reality, earthquake insurance is a separate policy that must be purchased in addition to homeowner's insurance, and government assistance is limited and will not cover the cost of rebuilding a home. The relatively low uptake of earthquake insurance in California is also attributed to the cost, with premiums ranging from $730 to $5,000 annually, and the perception that earthquakes are unlikely to occur or cause significant damage.

Only 10-13% of Californians have earthquake insurance

Despite California being the nation's leader in earthquakes, only 10-13% of Californians have earthquake insurance. This is surprising given the high awareness of the risk of earthquakes in the state. California is home to 90% of the nation's earthquakes, and two-thirds of earthquake damage in the country happens in California.

There are several reasons why so few Californians have earthquake insurance. Firstly, many people assume that earthquake damage is covered by their homeowner's or renter's insurance policy, but it is specifically excluded from standard policies. Earthquake insurance must be purchased as a separate policy, and many people are unaware of this.

Another reason for the low uptake of earthquake insurance is the cost. Earthquake insurance can be expensive, with premiums ranging from $730 to $5,000 per year, and deductibles typically being 15% of the total value of the home. For people of moderate income, this can seem like a luxury they cannot afford. Even those with greater means may decide that the cost is not worth the benefit, especially if they perceive the risk of earthquake damage to be low.

The perception of risk is another factor influencing the low number of Californians with earthquake insurance. People often believe that bad things will happen to someone else, not them, and it can be hard to convince people to prepare for an event that they think is unlikely to occur. The fact that earthquakes don't happen very often and that the last major earthquake in California was 25 years ago contributes to this perception of low risk.

Some homeowners also believe that the government will provide financial assistance if their home is damaged by an earthquake, and that they don't need insurance. However, while the federal government may declare a federal emergency and provide some assistance, it is limited and not intended to rebuild homes.

The lack of earthquake insurance in California carries risks for homeowners and the economy. If a major earthquake occurs and homeowners are uninsured, they could face catastrophic financial losses. This could have a ripple effect on the economy, particularly in the state with the highest number of earthquakes in the country.

It is not included in standard home insurance policies

Earthquake insurance is not included in standard home insurance policies. This is true for homeowners, renters, and condo insurance policies. In California, the law requires home insurance companies to offer earthquake coverage, but it is not part of the standard policy.

The California Earthquake Authority (CEA) is the state's primary earthquake insurance provider. It works with more than a dozen companies to offer policies for homeowners, renters, condo unit owners, and those who own manufactured homes. The CEA was formed to assist consumers after the Northridge earthquake in 1994 "scared away" many insurance companies from offering earthquake policies.

Before the Northridge earthquake, most earthquake insurance policies were "one-size-fits-all." Now, consumers can adjust the amount of coverage they want, controlling their premiums and deductibles. Coverage should include the replacement of the structure itself, but consumers can decide if they want to add on personal property coverage or "additional living expenses" coverage in case they need to live elsewhere while their home is being repaired.

The average cost of earthquake insurance for a home is $800 per year, with renter's insurance averaging $100 to $125 per year. Earthquake insurance deductibles are often high and can considerably reduce a claim payout. They are usually a percentage of the coverage limits, ranging from 2.5% to 25%.

Cost is a significant factor

The cost of earthquake insurance is especially significant when considering that it is an additional cost on top of existing insurance payments. Earthquake insurance is not typically included in standard homeowners' or renters' insurance policies and requires a separate policy. This means that for many people, the cost of earthquake insurance is an extra expense that they need to fit into their budget.

Furthermore, the low probability of earthquakes can make the cost seem unjustified. Earthquakes don't happen very often, and with the last major earthquake in California occurring 25 years ago, it can be easy for people to adopt an "out of sight, out of mind" attitude. People may feel that the likelihood of an earthquake occurring is low and therefore not worth the additional cost of insurance.

The cost of earthquake insurance is also significant when compared to the limited government assistance available after a disaster. While government assistance may be available in the form of FEMA grants, these grants are limited to emergency repairs and may not cover the full cost of rebuilding a home.

Overall, the cost of earthquake insurance is a significant factor in the decision-making process for many Californians. It is an additional expense that needs to be weighed against other financial priorities and the perceived risk of earthquakes.

Many believe it won't happen to me

Many Californians believe that earthquakes won't affect them, and this is a significant reason why so few have earthquake insurance. Only around 10%-13% of California homeowners have earthquake insurance, despite the state's vulnerability to earthquakes.

This belief that "it won't happen to me" is a common psychological phenomenon where people underestimate their own risk of experiencing a negative event. In the context of earthquakes, this belief is influenced by the fact that earthquakes don't occur frequently, and there are often no visible signs or warnings that one is about to occur. As a result, people go about their busy lives, focusing on more immediate concerns and priorities.

Additionally, the last major earthquake in California was 25 years ago, so it's understandable that many residents have become complacent about the risk. It's a "silent danger" that lurks in the background, and people may prefer to ignore the possibility of it happening to them. However, as CEO of the California Earthquake Authority, Glenn Pomeroy, points out, the recent earthquakes in Southern California were a stark reminder of the state's vulnerability.

The belief that earthquakes won't happen to them is a dangerous misconception. Earthquakes can strike at any time, and the entire state of California is vulnerable. By the time an earthquake occurs, it is too late to purchase insurance, and those without coverage may face significant financial difficulties in rebuilding their homes and their lives.

To address this misconception, the California Earthquake Authority (CEA) plays a crucial role in educating residents about the importance of earthquake insurance. The CEA is a not-for-profit organization that offers earthquake insurance and works to encourage Californians to take steps to reduce the risk of earthquake loss. Through partnerships with other insurance companies and outreach efforts, the CEA aims to increase awareness and help more people understand the value of earthquake insurance before a major quake hits.

Some think the government will provide aid

In the aftermath of the recent earthquakes in California, the topic of earthquake insurance has gained traction. Many Californians are under the impression that the government will provide aid in the event of an earthquake, leading to a low uptake of earthquake insurance policies.

According to Glenn Pomeroy, CEO of the California Earthquake Authority (CEA), a non-profit organisation that offers earthquake insurance, many consumers harbour misconceptions about earthquake coverage. One such misconception is the belief that the government will provide sufficient aid in the aftermath of an earthquake. However, as Pomeroy points out, government assistance is limited. While FEMA grants are available for emergency repairs, the maximum amount is approximately $33,000, which falls significantly short of the cost of rebuilding a home.

The lack of a government mandate for earthquake insurance in California further contributes to the perception that it is not a necessary expense. Unlike flood insurance, which is required for those living in flood plains, earthquake insurance is not mandated by the government. This absence of a mandate may influence Californians' perception of the risk and their belief that the government will ultimately provide assistance if needed.

The low uptake of earthquake insurance in California, with only about 10-13% of homeowners insured, underscores the prevalent notion that government aid will suffice in the event of an earthquake. This belief, coupled with the perception of low risk and high cost, contributes to the low insurance rates in the state.

However, it is essential to recognise that earthquakes can cause extensive damage, and the financial burden of rebuilding can be overwhelming without adequate insurance coverage. While government assistance may provide some support, it is typically insufficient to cover the full scope of damages. Therefore, it is crucial for Californians to carefully consider their insurance options and not solely rely on potential government aid.

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