Earthquake Insurance: Something You Must Prepare For
I was sitting at my desk talking with a client on the phone about life insurance when I saw everyone starting to gather around the copy machine. I thought to myself, “Oh great the copier broke.” However, to my surprise, no one was talking about the copy machine they were talking about a potential earthquake that I apparently missed. I quickly went to my trusted news source, Twitter, and I saw my computer screen updating faster than I could read with comments verifying the earthquake.
One thing that was strange about the situation is that I just read an article about earthquake insurance the day prior and it stated that experts believe an earthquake between 6.5 and 7.5 remains possible in the East Coast or Northeast. In addition, John had put a sticky note on the article to write a blog post about this topic in the following weeks. After the most recent events in Lancaster and several phones calls from people wanting to know more about earthquake insurance, it was pretty obvious this blog topic needed to get moved up the priority list.
The Earthquake Exclusion
Earthquakes can have a devastating impact on property owners because earthquakes are not covered under standard homeowner or commercial insurance policies. The following excerpt is from the earth movement exclusion found in the ISO commercial property policy CP 10 30 06 07.1
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss
b. Earth Movement
(1) Earthquake, including any earth sinking, rising or shifting related to such event
The only good news about the exclusion is that coverage for related damages that may result from earthquakes, such as fire and water damage, may be provided by standard homeowner and commercial property insurance.
How to Get Earthquake Coverage
Unlike flood insurance, earthquake coverage in PA can be added to your existing homeowner or commercial policy by endorsement. However, the cost will differ widely based on location, insurance company, distance from fault lines and the type of structure covered. Generally, older buildings cost more to insure than new ones because older building are less likely to be updated to current construction code. Wood frame structures generally benefit from lower rates than brick buildings because they tend to withstand quake stresses better.2
Be aware that you may not be able to get earthquake coverage immediately. Right after the earthquake we felt in Lancaster we had customers calling to add earthquake coverage immediately to protect themselves against any potential aftershocks. However, we could not “bind” the earthquake coverage right away because insurance companies have specified waiting periods relative to the last tremor before earthquake coverage takes effect.
Earthquake Deductible Issues
The major difference about earthquake coverage compared to coverage for fire or any other cause of loss, is that it has its own separate deductible that is a percentage rather than a dollar amount. In Lancaster PA, earthquake deductibles normally range between 2-5% with deductibles up to 20% in higher risk areas of the country. This means if your home is insured for $200,000 and you have a 2% earthquake deductible, you would have a $4,000 deductible for an earthquake claim.
Earthquakes are a real risk in our area with Harrisburg having an earthquake of 3.4 as recently as July 16, 2010. Take five minutes and ask your insurance agent if earthquake insurance is right for your home or business. To get other tips on taking protective measures before an earthquake strikes and what to do during and after earthquake visit FEMA’s website Are You Ready?
1Christopher Tritto, “Are We Prepared for Our Own Disaster?” St. Louis Business Journal, Sept. 9, 2005
2Robert J Prahl, “Earthquake Insurance, What’s Your Experience?” Adjusting Today, Aug. 1, 2011