Recent statistics reveal that only 12% of California households purchased earthquake insurance last year. This is particularly concerning given that federal scientists estimate a 20% chance of the Bay Area experiencing a stronger earthquake than the 1989 Loma Prieta quake within the next 30 years. Yet, many residents remain unprepared to protect their homes from potential devastation.
According to the San Francisco Chronicle, despite California being more seismically active than any other state and facing significantly higher losses, only 1.5 million households in the state opted for earthquake insurance in 2023, representing a mere 12%.
It’s important to note that standard homeowners, condo, and rental property insurance typically does not cover damage due to earthquakes. This means that, in the event of a major quake, California residents would have to shoulder all losses and expenses themselves.
The reluctance of many families to obtain earthquake insurance is understandable. For one, premiums can be quite expensive, and secondly, since the significant earthquake in 1989, major tremors have been infrequent in the state. As a result, many young homeowners do not feel an urgent need to protect against the threat of losing their homes.
The California Earthquake Authority (CEA), the largest provider of earthquake insurance in the state, has recently implemented measures that reduce compensation limits. Last year, they lowered the maximum payout for personal property loss from $200,000 to $25,000 and eliminated the 5% or 10% deductible option for homes valued over $1 million or homes built before 1980 without proper reinforcement.
The CEA cites rising inflation and increasing reinsurance costs as the reasons for these changes.
In the past, homeowners’ insurance used to cover damages from earthquakes, but now, it only covers losses caused by fires following an earthquake. This shift dates back to the 6.7 magnitude Northridge earthquake in Southern California in 1994, which is considered the costliest earthquake in U.S. history and ranks as the tenth costliest natural disaster globally, according to global risk management firm Aon.
While some insurance companies still offer private market earthquake coverage—which makes up about one-third of California’s total earthquake policies—most families acquire their insurance through the California Earthquake Authority. Data shows that the average premium for CEA policies hovers around $925, while private market policies average about $885.
However, when breaking down the costs by coverage specifics, premiums from the CEA are often more affordable and have been gradually decreasing over the past decade, with only a slight increase at the end of last year due to rising reinsurance and rebuilding costs.
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