Maryland Earthquake Offers Reminder of Widespread Risk

Most Homeowners Are Not Prepared for a Major Quake, I.I.I. Reports

INSURANCE INFORMATION INSTITUTE
New York Press Office: (212) 346-5500; media@iii.org

 

NEW YORK, July 16, 2010 — The 3.6 magnitude earthquake felt in the Washington, D.C., metropolitan area this morning had its epicenter in Gaithersburg, Maryland, and was the first earthquake to hit the state since 1990.

 

While no damage has been reported in Maryland, it is a reminder that since 1900 earthquakes have occurred in 39 U.S. states, according to the Insurance Information Institute (I.I.I.). There has not been a major quake on the U.S. mainland since the 6.7 magnitude Northridge, California event in 1994, which resulted in 60 deaths and insured losses of $15.3 billion when it occurred. 

 

 

California remains the U.S. state most at risk of a major earthquake, although the Pacific Northwest is also an area of concern to insurers and reinsurers. Yet, more than 16 years after the Northridge earthquake, only about one in eight California residents have their homes or businesses insured for property losses in the event of a quake, according to Insurance Information Network of California (IINC) estimates. The 1994 Northridge earthquake ranks as the fourth costliest U.S. disaster, based on insured property losses (in 2009 dollars), topped only by Hurricane Katrina, Hurricane Andrew and the attacks on the World Trade Center.

 

EARTHQUAKES AND INSURANCE

Earthquakes are not covered under standard U.S. homeowners or business insurance policies. Coverage is usually available for earthquake damage in the form of an endorsement to a homeowners or business insurance policy or as a stand-alone policy, depending on the state in which you live. Standard homeowners and business insurance policies may, however, cover losses from a fire following an earthquake, which would include additional living expenses and business interruption coverage. Cars and other vehicles are covered for earthquake damage under the optional comprehensive portion of an auto insurance policy.

 

Earthquake insurance premium rates are determined differently by each insurance company and can vary widely depending on several factors. Because earthquake insurance is a type of catastrophic coverage, most policies carry a high deductible—anywhere from 2 to 20 percent of the replacement cost of the structure. For instance, if the cost to rebuild your house after a quake is $100,000 and your policy has a 2 percent deductible, you would be responsible for the first $2,000.

 

In California, homeowners can also secure coverage from the California Earthquake Authority (CEA), a privately funded, publicly managed organization. The CEA offers homeowners dwelling coverage deductibles of either 10 or 15 percent. The CEA coverage limit is the insured value of the home as stated on the companion homeowners insurance policy.