After the recent Virginia earthquake, many people asked about the need for earthquake insurance. Let’s do a risk assessment.
Earthquake is not the risk but rather the peril or cause of loss for damage to property. A building can sustain structural damage, walls crumble and ornate facades, pinnacles and spires fall off. Heating, ventilation and air conditioning equipment if not secured properly will shift and be damaged. Broken gas pipes and electrical wiring create other dangers. The shaking can make interior walls collapse, file cabinets, large furniture and other objects tip over, and pictures fall off walls.
If the quake caused any significant direct property damage your business operations will be interrupted. During the interruption your association may lose income (rental fees, dues, sales, conference registrations) or incur added expenses to keep up operations including setting up a temporary office.
During the analysis phase we consider the frequency (how often) and severity (dollar loss) potentials of earthquakes. The U. S. Geological Survey (USGS) is a tremendous resource all things earthquake.
USGS suggests you find your proximity to active earthquake faults, the seismic history of the region (frequency), and how long since the last earthquake. On the East Coast earthquakes are relatively low in both frequency and intensity. However the New Madrid Fault in southeastern Missouri and western Tennessee has a higher probability of a significant earthquake. The West Coast including Utah and Nevada has a higher incidence of earthquakes. USGS’s 2009 Earthquake Probability Mapping site enables you to check the probability by zip code.
As we say in the insurance world “frequency breeds severity,” so the more earthquakes in a region the greater the chance for a significant event. Alaska is the most earthquake prone state but California has had the most substantial earthquakes.
When assessing severity consider both the potential intensity of an earthquake and your building’s and office’s susceptibility to damage. Brick buildings don’t do well in earthquakes while frame construction fares better due to its “flexibility.” Other construction types depend upon its level of “earthquake resistance.” Buildings in California are more earthquake resistant than in other parts of the country. You also need to consider the soil composition, slope of the land and annual rainfall to assess severity.
You can purchase earthquake insurance as an additional peril under your property insurance policy (personal and commercial). The premium depends upon your location (proximity to faults) and building construction. Earthquake insurance is much cheaper on the East Coast than the West Coast. You can buy coverage for the full value of your property or as a sublimit.
Another factor is the size of the deductible. On the East Coast your deductible may be as low as 2% of the property values while in California your deductible would be 10 – 15% of the property values.
While assessing the need for earthquake insurance, determine the property values subject to loss by an earthquake. If the property values are low and you have a high deductible, the claim may be under the deductible. If you own an older building with ornate features you may sustain more damage than a newer building. The East Coast quake caused damage mainly to churches and older brick buildings where it might be appropriate for earthquake insurance.
If you are still undecided, ask your insurance agent to get a quotation for earthquake insurance. Knowing the cost and deductible can help you decide if you need earthquake insurance.
The Virginia earthquake awakened people to this exposure. We learned that few of us know what to do and unintentionally endangered themselves and others. Even if you don’t purchase insurance learn what you should do before, during and after an earthquake to protect people and property. After writing your new procedures don’t forget to train your staff. Be safe.