SCEC INSTANeT News
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SCEC INSTANeT News |
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Earthquakes and Insurance, Then and Now |
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By Jill Andrews If we weren't already designating April as Earthquake Preparedness Month in California, we might easily choose October, since we've had three significant events in October over the last 30 years. California homeowners living near the faults that moved in the Imperial Valley (1979), Loma Prieta (1989), and Hector Mine (1999) earthquakes undoubtedly would tell you that it's a good idea to have earthquake insurance. On the flip side, those who sell earthquake insurance will undoubtedly tell you that if you provide earthquake coverage in California, it's a good idea to "plug in" to the earthquake research community. We've not only helped insurers better understand the hazard (earthquake potential), but we've also provided some new tools to save time and money -- of particular interest is TriNet's "ShakeMap". ShakeMaps are generated automatically following moderate and large earthquakes. A ShakeMap is a computer-generated depiction of ground shaking produced by an earthquake. The information it presents is different from the earthquake magnitude and epicenter that are released after an earthquake because it focuses on the ground shaking produced by the earthquake, rather than describing the earthquake source. Earthquake insurance is easier to buy now than it was in 1995, thanks mostly to the California State Legislature and the California Earthquake Authority (CEA), now the world's largest residential earthquake insurer. Before the January 17, 1994 Northridge earthquake, earthquake insurance was a "good deal" and easy to get. A year after that event, earthquake insurance was nearly impossible to buy. Why? One explanation, according to Tom Henyey, Southern California Earthquake Center (SCEC) Director, is that "auto and life insurance rates are firmly based on the statistics of large numbers, but earthquake insurance is just the opposite. Until the 1971 Sylmar earthquake, no major earthquakes had struck right under a modern city, and Sylmar was considered by many to be a once in a lifetime event. That's why between 1971 and 1994, insurance companies collected only about 3.5 billion dollars in premiums; but after Northridge they had to pay out almost four times that much." (Insured residential damage ultimately totaled $12.5 billion.) By one year after Northridge, insurers feared potential insolvency from another huge earthquake, and those companies representing about 93 percent of the homeowners insurance market in California severely restricted, or refused to write, new homeowner policies because of the mandate that they also had to offer earthquake insurance. This triggered a crisis that by mid-1996 seriously threatened the vitality of the state's housing market and stalled the state's recovery from recession. In late 1995, the State Legislature designed a catastrophic residential earthquake insurance policy known as the "mini-policy," effectively setting a new minimum standard for coverage that must be offered to every residential policyholder. By late 1996 the CEA had been established as a privately financed, publicly managed entity to help California residents protect themselves against earthquake loss. Acting through its participating insurers, the CEA sells earthquake policies to homeowners, mobile home owners, condominium owners, and renters throughout California and provides retrofit assistance to help people protect their houses against earthquakes. That same year, the Southern California Earthquake Center, with its partners in the California Department of Conservation's Division of Mines and Geology, US Geological Survey, and other academic institutions, launched a series of "Earthquakes and Insurance" workshops and served as a resource to insurers to help them better assess the earthquake hazard. This was the beginning of a partnership between SCEC and the CEA to increase earthquake hazard awareness and encourage mitigation. The Department of Insurance reported in mid-1997 that more companies were offering homeowners insurance with fewer underwriting restrictions than even before the Northridge earthquake. Since this dramatic recovery, the CEA has piloted a retrofit program in two California counties and has begun to offer higher, supplemental coverage limits to its policyholders. In 1999 the CEA, with partners SCEC and the Institute for Business and Home Safety, was the primary sponsor of an educational video about earthquakes and the importance of preparedness. "Earthquakes: Seismic Sleuths" is scheduled to air on Assignment Discovery the first four months of 2001. Exact airtime information will be announced through INSTANeT at a later date. Back to October, our three-earthquakes-in-recent-history month. Exactly one year ago, immediately following the Hector Mine earthquake, I got a call from one of my friends who writes earthquake insurance. He was ecstatic. Why? In so many words, he described "Stress Relief" as having the ability to roll out of bed (having felt the early morning event), check the TriNet Shakemap for the Hector Mine earthquake, and go right back to bed, knowing the event was not another show stopper. The Modified Mercalli Intensity map he saw online depicted the expected "felt and damage" distribution, and it was centered largely in an uninhabited area of the desert. ShakeMap to the insurers' rescue! Earthquake researchers partnering with insurers. Insurers helping policyholders. Policyholders taking actions to reduce loss. Policyholders and insurers providing feedback and support to researchers. Stress relief all around. Sources: |
Phone 213/740-5843 Fax 213/740-0011 e-mail: SCECinfo@usc.edu |