About 17 percent of California homeowners currently own earthquake insurance. That means 17 out of 100 households have earthquake insurance. Yet, the number is rapidly increasing due to the influence of the frequent earthquakes we have recently been having.
17 percent is a reported data from many months ago and it is a big percentage considering that California has one fifth of the population of USA. When we compare the cities that are not so affected by earthquakes with the cities in the LA area, a hotspot for earthquakes, the number of earthquake insurance policy owners rise to 25%.
Furthermore, many Koreans reside in earthquake hotspot areas. Los Angeles, San Bernardino, Orange, Riverside, San Diego, and Bakersfield are all earthquake danger zones. It is very concerning that although many Koreans own properties in these areas, the percentage with earthquake insurance is significantly lower in comparison to that of the white community.
There may be many reasons why Koreans do not apply for earthquake insurance. A few significant reasons that they hesitate may be that they have a vague hope that the big earthquake would not come, costly insurance premiums, and the reality of difficult financial situations.
Let us remember the big earthquakes that hit Southern California. Many properties were damaged during the 6.6 magnitude Sylmar earthquake in 1971. Twenty three years later, in 1994, a 6.7 magnitude earthquake hit Northridge. Thirty four people lost their lives, including Koreans, 8,000 people were injured, 420,000 insurance claims were filed, and over 20 billion dollars were paid out in insurance compensation. Many Korean clients insured with our company had money left over from the compensation even after repairing the damages from the quake.
It has been 20 years since the Northridge earthquake and it is not a good sign that more and more earthquakes are occurring at high magnitudes.
Insurance agents at this point do not have much knowledge about the damages that might occur when a 6.5 or greater earthquake hits and they recommend not getting earthquake coverage, believing that the possibility of getting compensated by simply having an earthquake insurance coverage is very low. I believe that this is a risky judgment.
Because the deductible for the Northridge earthquake insurance was under $1,000, the total cost of the damages was compensated. As we were processing the Northridge earthquake claims, we noted that people were compensated about 75 to 80 percent of their policy limit. Considering that the average market value of homes was $150,000 to $170,000 at that time and the average value of the earthquake insurance was also $150,000, they received about $120,000 after negotiations with the insurance companies.
If the average market value of a home was $150,000 during the Northridge earthquake, the average market value of a home now is around $500,000 to $600,000. If 75 percent of $500,000 is $375,000 minus 10% deductible, which is $50,000, we can expect about $325,000 to be paid out in compensation if a similar earthquake were to hit today.
We can further expect the compensation to be around $292,500 if we deduct another 10% ($32,500) because external structures such as walls and pools are not covered by insurance.
In contrast, with the annual cost of insurance being $1,500 to $2000 in the case of a residential home, the profit far outweighs the cost. As a specialist, we view earthquake insurance as going beyond insurance but as an investment because we have seen that the compensation from an earthquake claim can be much more than the profit from just investing extra cash.
We have seen many cases where people were able to repair their homes inside and out to their preference and still have money left over.
Today, 70% of California’s insured clients are insured through California Earthquake Authority, which is a non-profit insurance company and 30% are insured through commercial insurance companies.
Since State operated insurance companies do not offer coverage for apartment and commercial buildings, you can compare and choose from several commercial insurance companies that do.
In addition, if you own an expensive home, with many outdoor fixtures such as swimming pool, basketball court, you can find a commercial insurance company that covers outdoor fixtures.
If an earthquake were to hit today, state operated insurance companies are ready to pay out up to 10 billion dollars in compensation. This is a big increase from the total of $20 billion dollars paid out by all the insurance companies combined during the Northridge earthquake. This is because we have not had a big earthquake since then and the payout fund has been storing up for a long time.
Commercial insurance companies set aside 70 percent of the insurance premiums for compensations and they operate and profit from the remaining 30 percent. On the other hand, California Earthquake Authority, run by the state of California sets aside 85% of the premiums for compensations. This is why the premium rate is a little less for state operated insurance companies. There is also a small difference in the range of coverage.
The following are a few commercial earthquake insurance companies:
Geovera, Allies, Kempra, Travelers, Fireman’s Fund, AIG, QBE
Get Earthquake Insurance before it is too late.
Jung Park, PA
Excel Public Adjusters