Real Estate

Local stats match low state numbers in earthquake insurance policies

Homeowners in both Santa Clara and San Mateo counties echo the statewide average in earthquake policies

As wildfires burn throughout the state once again, for the moment, earthquakes might seem like a more distant worry. But two large southern California quakes this summer, a few minor shakers in the Bay Area last month — not to mention the recent 30th anniversary of the Loma Prieta earthquake — are reminders that California's second-most infamous natural disaster could strike again at any time.

But even so, earthquake insurance doesn't seem high on many homeowners' to-do lists, either locally or statewide.

If you have homeowners insurance, "your company must offer to sell you earthquake insurance. It must offer this every other year," according to an explainer published by the California Department of Insurance. But homeowners aren't required to have earthquake insurance.

And the Department's statistics bear that out: As of 2017, 13% of California homeowners with home insurance had an earthquake insurance policy. Locally, the numbers match up with the state average.

The Department's fire and earthquake policy count per county, also as of 2017, shows that 13%, or 36,708 homeowners, had earthquake policies in Santa Clara County. Likewise, in San Mateo County, 13%, or 16,894 homeowners, had earthquake policies.

When there is a significant quake, it does jolt more homeowners into getting policies, said Chris Grammar, owner and president of Insurance by Allied Brokers in Palo Alto.

"Every time there's an earthquake, there's a slight bounce. The Napa earthquake (of 2014) was a pretty good bounce. The insured losses on the Napa earthquake were not that extreme," Grammar said.

The fact that homeowners aren't required to have earthquake insurance may contribute to some common misconceptions.

"A lot of people think they already have it. They think that earthquake damage is covered in their regular residential insurance policy, and it's specifically excluded, actually. So if they don't have earthquake insurance, they aren't covered for earthquake damage," said Sarah Sol, media relations manager for the California Earthquake Authority.

Sol said that the Earthquake Authority found another common misconception: In the aftermath of a major disaster, the government will lend assistance in rebuilding.

"We hear from a lot of people that they think government is going to come in and bail them out. If an earthquake happens in your area, that's just not realistic. FEMA (Federal Emergency Management Agency) grants do exist, but they're typically capped at around $34,000 which is not going to be enough to rebuild your home," she said.

The Earthquake Authority is a not-for-profit, privately funded, publicly managed organization that provides residential earthquake insurance in California. Most earthquake policies in California are through the Earthquake Authority, according to the California Department of Insurance.

The state legislature created the California Earthquake Authority in 1996, to stop insurers from abandoning the California insurance market in the aftermath of the 1994 Northridge quake near Los Angeles.Those who have insurance through the Earthquake Authority don't buy it directly from the organization, but from insurers who are members of the organization.

As earthquake insurance policy holders, Grammar's clients beat the local and state average by almost double.

"Of my clients, 25% have earthquake insurance. Most brokers don't concentrate on it," Grammar said.

The Authority has about 70% of the market, Grammar said, but in addition to policies offered through the Authority, he also writes policies for insurers that aren't members of the Earthquake Authority. He said that these specialty companies, such as GeoVera and Palomar, are often focused on providing insurance for natural disasters and tend to be more selective for "better" risks: homes that aren't in liquefaction zones or newer homes that meet more stringent building codes.

Regardless of the insurer, the location, as well as the age of a home, the number of stories, how it's constructed and whether it's been seismically retrofitted, are all factors that will affect premiums. For instance, a more stable slab foundation is a plus, but an older home —one built before 1980 —is less likely to be up to code.

"In your area, there are multiple faults, you're right between the San Andreas and the Hayward faults, so you're definitely going to have a location-related risk there," Sol said.

That said, there isn't an easy average premium for the area, because homes vary in age and construction methods, Sol noted, and with Earthquake Authority insurers, there's a variety of policies with a range of deductibles from 5 to 25%.

But as an example, Sol checked the data for California Earthquake Authority policy holders in the 94306 zip code and found that, with the average age of houses dating to 1960 and slab foundations typical in the area, that the average reconstruction cost for a house in the zip code would be $630,000.

"That's the other key factor that goes into the rate: It's not the value of the house, including your land and what you would sell it for; it's how much it would cost to rebuild the structure on it," Sol said.

"For that house, the policy could be anywhere from about $1,063 all the way up to $5,487 a year. That's taking into account whatever the purchaser chooses, how much coverage they want and what deductible."

Considering the worst case scenario might be key to whether a homeowner decides earthquake insurance is worthwhile. What's typically covered by an earthquake policy is major structural damage, loss of personal property and "loss of use" —when a damaged home cannot be lived in and its residents must find other accommodations. Coverage exists to repair more cosmetic issues, such as cracked finishes, but that will generally be more expensive.

An Allied Brokers brochure put it plainly: "Earthquake insurance is for major damage only," citing the example of a policy holder's swimming pool "emptying completely into his house" during the Loma Prieta quake. "He was happy to pay his deductible."

Looking for more information?

• The California Department of Insurance offers an earthquake insurance explainer. Visit insurance.ca.gov.

• The California Earthquake Authority's online calculator provides estimates of earthquake insurance premiums. Visit earthquakeauthority.com.

• Allied Brokers offers earthquake insurance. Visit alliedbrokers.com or call 888-505-7988.

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