A.M. Best: Few Americans Sign Up For Earthquake Insurance
By Eileen Alt Powell, AP Business Writer - October 16, 2006NEW YORK (AP) _ Few Americans have invested in earthquake insurance despite the massive damage that quakes can cause, according to a report released Friday by A.M. Best Company Inc.
A.M. Best, an insurance rating agency based in Oldwick, N.J., looked at the earthquakes that caused the greatest damage in the United States.
The massive Northridge, Calif., earthquake of 1994, for example, resulted in nearly $18 billion in insured property losses in today's dollars, the report said. The great San Francisco earthquake and fire of 1906 would generate more than $29 billion in insured losses today.
"Yet A.M. Best estimates that only 10 percent to 15 percent of U.S. homeowners have earthquake insurance," the report said.
Even in quake-prone California, " only 12 percent of 2005 residential insurance packages and 11 percent of commercial insurance packages included earthquake coverage," the report said.
The topic is timely because some of the coverage problems with earthquakes are similar to those with hurricanes.
Homeowners insurance policies typically cover rain and wind damage but exclude water damage caused by storm surge and flooding. As a result, thousands of homeowners hit by Hurricane Katrina and other storms last year have had trouble collecting for damage.
When it comes to earthquakes, most homeowners policies cover damage from fires set off by an earthquake. But special riders are need on the policies to cover damage from shaking.
John Williams, a business analyst with A.M. Best who was co-author of the report, noted that the number of people and companies carrying earthquake coverage is low.
"Part probably has to do with cost," Williams said. "Sometimes there's a high deductible, so people wonder if it's worth taking it on. Or there could be caps on coverage, again making people think twice."
Williams said that many people mistakenly assume they don't live in an area that's at risk.
"The fact is, there's earthquake risk in most areas of the country," he said.
For example, studies done for A.M. Best in connection with the report modeled the possibility of quakes in northern Illinois, along the Philadelphia-New York corridor, in Missouri, and in the San Francisco and Los Angeles areas.
In high-risk areas like California, earthquake coverage generally is provided through state-sponsored entities such as the California Earthquake Authority. But private companies also write earthquake riders, including the State Farm Group, Zurich Financial Services and American International Group Inc., the A.M. Best report indicated.
The cost of not having earthquake coverage could be extremely high. The study found, for example, that a huge earthquake in the Los Angeles area could result in nearly $550 billion in property losses of which just $101 billion would likely be reimbursed by insurance companies at current participation rates.
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