What About Earthquakes?

By Author: Marcus Stalder
Total Articles: 491
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Everyone round the world has been watching the results of the recent earthquake in Japan, particularly as it has affected the nuclear power plant in Fukushima. This raises two important questions for us on the other side of the Pacific. Just what would happen if an earthquake of the same strength hit over here? At this point, we should all get out our insurance policies and read the small print. Well, perhaps not. Even at the best of times, this is a depressing exercise. You can assume most standard policies will exclude losses flowing from an earthquake (we'll leave all the questions about tsunamis and other problems of flooding to a different article). So should we worry?

The Insurance Information Institute confirms what you may find a rather surprising fact. At one time or another, there has been earthquake damage in all 50 states. This is not the news you were wanting to hear. Fortunately, most of these quakes were small and only caused damage because the properties were old. Ah, now there's a whole can of worms. Unlike Japan where they have been building to withstand earthquakes for hundreds of years, we have tended ...
... to ignore the problem. It's a remarkable fact that vast numbers of older Japanese buildings survive because they rely on wooden frameworks which are designed to sway and not collapse. The same is true of the modern skyscrapers. The building codes require flexibility in the structure so that they move and absorb the energy of the quake.

Even in California where the risk of earthquakes is higher, the building codes do not require similar protection against shaking and cracking. There are some requirements for "resilience" but that's it. Older homes, say in San Francisco, would probably all collapse if there was even a modest quake. Now here comes the explanation for the use of the word "optimism" earlier in this article. The insurance industry reports that only 12% of people living on or near the San Andreas Fault have earthquake cover. Why is this?

The answer comes down to cost. If you want to insure your home against earthquakes, you will be looking for separate coverage. The standard policy excludes all direct damage from earth tremors and quakes. There's also no cover if, say, you were forced to leave your home because of a leak of radioactivity in a nearby nuclear plant. That's for you to resolve in a court case against against the power company for failing to build their containment vessels to withstand earthquakes. So let's say you have an older property from before the times when building codes take account of earthquakes. The home insurance quotes will come in between $2,000 and $5,000 depending on the local geology. The higher the risk of an earthquake, the higher the premium. Early this year, there was a quake in Arkansas. Fortunately for residents, it was only 4.7 on the Richter scale. If the San Francisco quake of 1905 was to be repeated, the estimated cost of repairing the damage is over $100 billion. If you are going to get home insurance quotes against this risk, remember that, should your home be a total loss, the recent changes in the building codes might make it a lot more expensive to rebuild.