There’s a 99.9% probability of large LA earthquake in 3 years – so why won’t people get insured?

A NASA report reveals the imminent certainty of a magnitude-5 or larger quake in Southern California, yet just 10% of homes in the state are insured.

Catastrophe & Flood

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A shocking report from NASA and university researchers released this week reveals a 99.9% probability of a magnitude-5 or greater earthquake within three years in greater Los Angeles – yet just 10% of homeowners in the state are insured against such a rusk.

According to the study, Earth’s crust was deformed by a magnitude-5.1 quake in 2014 n La Habra, California, a suburb 20 miles southeast of downtown Los Angeles. Based on measurements of that deformity, NASA views a similarly strong earthquake in a 62-mile radius of the area as a near certain probability.

Another analysis from the US Geological Survey pegs the probability of the same quake at 85%.

That should represent a call to action for the state’s professional insurance agents, but earthquake coverage has always been a tough sell. More than 90% of homeowners lack an earthquake insurance policy in the US, and the numbers are similar in quake-prone California.

Notoriously high premiums and dependence on federal aid are the typical reasons given for the low rates of coverage, but a new marketing campaign from the California Earthquake Authority is hoping to change that.

Announced last month, the $11 million advertising push features harrowing, graphic images from the 2014 Napa Quake. The hope is that the campaign will bring home to consumers the devastation that can be caused by earthquakes and make them more seriously consider purchasing protection.

“I don’t think we have been doing a good enough job [getting the message across] to California consumers that the risk of earthquakes is very real – that a damaging earthquake is going to happen again,” California Earthquake Authority Glenn Pomeroy told the Wall Street Journal.

The Authority is also implementing rate decreases of an average 10% and it is most likely that, rather than any scare tactics, that will get home and business owners considering earthquake insurance.

The average earthquake policy in California in 2013 cost $676 a year, according to the state Department of Insurance, and policies often have a deductible of 10% or 15%. That means an individual with a $175,000 home with a 15% deductible would have to pay $26,250 out of pocket before getting any relief.

Faced with such daunting figures, many choose to go without a policy.

And the high costs and low take-up rates aren’t exclusive to California. In the Northwest, just 10% to 15% of property owners have the necessary coverage to claim damages in the event of an earthquake, and increased publicity on earthquake damage has done nothing to improve purchasing rates.

“You see an uptick in interest, but the actual [business] doesn’t rise much,” says Karl Newman, president of the Northwest Insurance Council. “Many times people say, ‘I’m not going to get earthquake insurance because it’s too expensive and the deductibles are too big.’”
 

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