What You May Not Know about Earthquake Insurance in California

Unless you have lived through an earthquake in California, you probably have very little idea of the amount of damage this type of event can cause. What may surprise you, even more, is that only 10 percent of homeowners in California have any type of earthquake insurance. The most commonly given reason for this is money, or at least the assumption that adding earthquake insurance is going to add significantly to the cost of a homeowner’s insurance policy.

Changes May be On the Horizon

This being said, California Earthquake Authority (CEA) CEO Glenn Pomeroy is on a mission to change this situation. At the moment, he is busy on a tour throughout Southern California trying to get word out to residents about a number of new options now available through the CEA.

The CEA is a publicly managed and privately funded organization the offers earthquake insurance to California residents via a number of insurance companies such as the Automobile Club of Southern California, Allstate, Liberty Mutual, Farmers Insurance, Progressive, Mercury Insurance, and several others. The CEA currently provides approximately 75 percent of all earthquake insurance in the state of California.

You can use a cost calculator on the CEA website to determine how much your monthly insurance premiums will be. What may surprise you, is that the cost of your monthly or annual premiums will be much lower than you might expect. Following the Northridge earthquake back in 1994, the cost of insurance premiums skyrocketed, but since then the CEA has conducted significant scientific research that has allowed the Authority to drop its rates by approximately 50 percent.

Pomeroy says, ” Normally in a given year we’ll increase our policy count by about 7,000, but this past year we grew by 50,000.” Visitors to the CEA website can adjust their deductible level from 5 to 25 percent and the amount of coverage from zero to $200,000. There is also a category for loss-of-use coverage that covers when your home is not habitable after a quake has struck that lets you add coverage from zero to $100,000.

The Power of Choice

Pomeroy states ” That’s the power of choice, our range for the deductible used to be just 10 to 15 percent, but now it goes up to 25 percent. And our personal property coverage used to be limited to just $5,000.” “California is ground zero for quakes,” he said. “We’re home to two-thirds of the risk.” These fears are fully supported by the 2015 Uniform Earthquake Rupture Forecast put out by the USGS (United States Geological Survey).

This study shows that over the course of the next 30 years, Southern California has a 93 percent chance of suffering an earthquake of magnitude 6.7 or greater. It also goes on to say there is a 74 percent chance of a quake with a magnitude of 7.0 or greater. While the risk of severe damage from a major earthquake may seem to be relatively low, many insurance companies have chosen to drastically reduce the number of homeowner policy they are willing to issue. The CEA was created by the state legislature to help provide California homeowners with access to more comprehensive homeowner insurance coverage.