To (earthquake) insure or not to insure?

Most Bay Area homeowners opt to take a chance rather than pay a high premium


Did you feel that shaking? Over the past two weeks we’ve had 10 earthquakes in the Bay Area. Ten! It’s got to be a sign, right? The Big One is coming.

Relax. These aren’t the clustered warning signs of the next Loma Prieta. Small earthquakes, like the 2.8 that shook Piedmont last week and the 3.7 that hit Morgan Hill the week before, are routine for this part of the world. Have you seen a United States Geological Survey map of the Bay Area? Faults everywhere. There’s bound to be some shaking going on.

The fact is when the next Big One hits — and hit it will, per the USGS, which in 2014 predicted a 72 percent chance of a 6.7 or greater magnitude temblor striking a major Bay Area fault “sometime before 2043” — it won’t come with any sort of long-term warning. This isn’t Mount St. Helens, bulging and spewing ash for months before erupting. Yes, California, Oregon and Washington all now have an early-warning earthquake app, but ShakeAlert gives you minutes to prepare, not days.

And yet we seem OK with it; we’ve always seemed OK with it. Living on top of faults is quirky and romantic, another element reminding us that this place where we live is special; beautiful and maybe a bit dangerous, maybe even doomed. When Loma Prieta hit, the assembled crowd at Candlestick Park cheered.

We also accept, though maybe with less panache, the fact of San Francisco’s soaring real estate values. Even a global pandemic, it seems, can’t kill this golden goose.

All of which makes you wonder, then, why nobody has earthquake insurance.

An outfit called Risk Management Solutions recently polled California homeowners and found that only 10 percent had earthquake insurance. Ten percent! The other 90 percent of us? We’re rolling the dice.

How can this be? Have we not seen the colorized photos from 1906? Did we forget the footage of the Marina in flames in 1989?

Actually, that could be part of it. In 1994, five years after Loma Prieta, 34 percent of homeowners had earthquake insurance. Now? Ten.

Doesn’t it seem like earthquake insurance is something that would be required in quake-heavy zones like ours? It isn’t, but insurance companies are required by the California Earthquake Authority to at least offer it to homeowners’ policy holders each year.

Seventy-five percent of all California earthquake insurance policies are provided by the CEA, though they’re actually sold through insurance companies as add-ons to homeowners policies. Earthquake insurance, unfortunately, isn’t cheap, which is definitely the biggest stumbling block to its popularity. So high are its premiums and deductibles that some homeowners simply choose to retrofit their properties and take their chances, rather than pony up for earthquake coverage.

How high are those premiums and deductibles? It’s easy to find out on the CEA site. Using their calculator, I found that the average San Franciscan would pay $2,600 annually to cover a median-value single-family home in the city ($1.65 million in April). That policy comes with a 15 percent deductible of the structure on the property, which means that the first $90,000 to $100,000 of damage would be out-of-pocket. The CEA recently began offering deductibles as low as five percent, which unfortunately raises the annual premium on our hypothetical San Francisco home to $4,800, about three to four times what it would cost for homeowners insurance on the same property.

So yes, it’s expensive. So much so that 90 percent of us, apparently, can live with the risk of the looming Big One, rolling the dice in hopes that our place will emerge unscathed or that whatever damage we suffer happens as a result of a post-quake fire. Or maybe we get lucky and move to North Carolina before that all happens, having saved thousands in premiums and skipped town before paying the piper.

I know a guy who — gleefully — did just that, but I also know a guy who, following a major remodel, decided to take the earthquake insurance — and the resulting peace of mind. “Yeah, he figures he saved $40,000 (by not buying earthquake insurance),” he said of our mutual friend, “but I’ve got too much equity (in my house). I can’t handle the risk of catastrophe.”

And there it is: how much risk can you handle? Do you trust the USGS? Do you think a 7.0-magnitude shaker is inevitable? Do you fear the worst in that scenario? You’ll probably want to swallow hard and accept the high cost of earthquake insurance. If not, if you’re like 90 percent of us, you’ll be fine taking your chances. It’s a shame, though, that the present economics of earthquake insurance create this reality because, let’s face it, we all should probably have earthquake insurance.

Larry Rosen is a San Francisco-based writer, editor, podcaster and recovering former Realtor. He is a guest columnist and his viewpoint is not necessarily that of the Examiner. The Market Musings real estate column appears every other week.

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