Earthquake Damage Is Not Standardly Covered

On August 24, 2014, California’s Napa Valley region experienced a 6.0 magnitude earthquake, the strongest quake to hit the San Francisco Bay area in almost 25 years. The earthquake destroyed homes in various neighborhoods, ruptured water and gas lines, and injured at least 120 people, according to the Insurance Information Institute’s (III) latest issues brief.

Standard homeowners or business insurance policies in the United States do not cover damage caused by earthquakes. But insurers typically offer earthquake coverage in the form of a policy endorsement for an additional premium. The III notes that insurers who do not sell earthquake insurance may still be impacted by earthquakes. For example, customers could file claims for losses due to fire caused by a quake, business interruption, and additional living expenses.

The III highlights several statistics about earthquakes, including:

• The United States has about 20,000 earthquakes per year, and 42 states are at risk for them, according to the U.S. Geological Survey.
• Insured losses from earthquakes were about $45 million in 2013, down from $54 billion in 2011 (the year of the 9.0 earthquake in Japan), according to Swiss Re.

Despite such statistics, however, only seven percent of American homeowners have earthquake insurance, according to a 2014 survey by the III.