According to recent statistics, only 12% of households in California purchased earthquake insurance last year. A stark reminder of this risk is the aftermath of the 1989 Loma Prieta earthquake, which caused significant damage in the Bay Area, including the collapse of the 880 highway.
Federal scientists have stated that there is a 20% likelihood of a stronger earthquake occurring in the Bay Area within the next 30 years compared to the Loma Prieta quake. Despite this knowledge, few residents are taking proactive measures to protect their homes from a potential major earthquake.
The San Francisco Chronicle reported that even though California experiences earthquakes more frequently than other states, and tends to incur higher losses, only 1.5 million households had earthquake insurance in 2023, which accounts for a mere 12% of the state’s households.
It’s important to note that standard homeowners, condo, and rental insurance policies in California typically do not cover damages caused by earthquakes, including personal property loss and temporary lodging expenses. This means that if a major earthquake occurs, California residents will bear the entire financial burden of damages and costs themselves.
The low uptake of earthquake insurance in California is understandable, primarily due to high premiums and the rarity of significant earthquakes since 1989. As a result, many younger homeowners do not feel an acute sense of urgency about the risk of losing their homes to a major quake.
The California Earthquake Authority (CEA), the state’s largest earthquake insurance provider, has taken measures in recent years to reduce its payouts. Last year, the CEA lowered the maximum payout for personal property loss from $200,000 to $25,000 and eliminated the 5% or 10% deductible option for homes insured for over $1 million or older homes without foundation reinforcements built before 1980.
The CEA stated that these decisions were influenced by rising inflation rates and increasing reinsurance costs.
Historically, homeowner insurance covered damages from earthquakes, but currently, it only covers losses due to fire following an earthquake. This shift dates back to the 1994 Northridge earthquake, which registered a magnitude of 6.7 and remains one of the most costly seismic events in U.S. history, ranking among the top ten natural disasters worldwide in terms of insurance loss.
While some insurance companies still offer earthquake insurance in the private market, representing about one-third of California’s earthquake policies, most residents purchase their coverage through the CEA. Data from the CEA indicates that their average premium is approximately $925, while private market policies average around $885.
However, when breaking down costs by specific coverage, the CEA’s premiums actually prove to be more affordable, having decreased over the past decade. The only recent increase was seen at the end of last year due to the rising costs of reinsurance and home reconstruction.
