Recommendations for Improving Seismic Code Development, Content and Education." In April 2022, FEMA produced, "A Step Forward. The National Earthquake Hazards Reduction Program (NEHRP) leads federal efforts to reduce destruction due to earthquakes by partnering with state and local governments, universities, research centers, professional societies and trade associations to develop research and risk reduction methodologies. Earthquake coverage is usually subjected to two separate deductibles, typically 10-15 percent of the cost of rebuilding the home and the home’s contents. Damage to vehicles would be covered under an auto policy. Indirect damage, such as fire and water damage from burst gas and water pipes is covered under a homeowners policy. For example, earthquake insurance typically only covers direct damage to the property resulting from the shaking of an earthquake. The consumer guide also defines common earthquake coverages and exclusions. However, the California Earthquake Authority, a publicly-managed, mostly privately-funded entity, sells earthquake insurance in California through participating insurance companies. While it is usually offered as an endorsement to a homeowners or businessowners policy, it can also be sold as a stand-alone policy. Earthquake coverage is sold primarily through admitted direct and surplus lines insurers. ![]() The guide explains earthquake insurance, including information on how to obtain coverage and file claims. For this reason, the NAIC produced the Consumer’s Guide to Purchasing Earthquake Insurance (PDF). Many homeowners believe that earthquake coverage is included in their homeowners insurance policy. As a result, risk is spread among many insurers. Insurers protect themselves from the financial instability caused by adverse selection by limiting the amount of risk they will accept from any one region. Insurers pay for earthquake losses from funds pooled via insured premiums that are set in proportion to the risk, thus allowing for financial diversification of risk. Its function as a pre-disaster funding tool limits the economic impact of post-disaster recovery to individuals, businesses and government. Insurance serves as an important tool in transferring the risk of earthquake damage and funding recovery efforts. Those with the highest perceived risk are also more likely to purchase the coverage-a phenomenon called “adverse selection.” Moreover, people may be unaware of their risk if a major loss event has not taken place in their region for an extended period of time or they may be overly reliant on federal assistance following a catastrophic event.Įarthquake insurance is important because it decreases the post-earthquake loss burden on individuals, businesses and society in general. ![]() The higher deductible amount shifts more of the risk onto the insured. Earthquake insurance generally includes a percentage deductible, ranging from 2% to 20% of the total insured property value. The cost of coverage may be prohibitive in high risk areas and coverage may be limited. People may not be aware that standard homeowners coverage does not include coverage for earthquake. ![]() Overview: There are several key reasons why many people do not obtain earthquake insurance. Despite the risk, a report produced by the Missouri Department of Insurance shows a 49% decrease in earthquake coverage for MO residents in the New Madrid region, moving from 60.2% in 2000 to 11.4% in 2021. A poll by the Insurance Information Institute indicated that only 11% of American homeowners had earthquake insurance. During the same timeframe, the probability of a magnitude 6 or higher earthquake is 25 to 40 percent. According to a study by the USGS, the New Madrid Seismic Zone (NMSZ) has a 7 to 10 percent chance of experiencing a 7.5 magnitude or greater earthquake over the next 50 years. Most people think of large magnitude earthquakes when contemplating earthquake risk, however, earthquakes of smaller magnitude can cause significant damage. Similarly, only 11.3% of Washington's residents were covered in 2017. ![]() history and yet only 10% of its residents have earthquake insurance. The USGS provides a mapping tool to show all magnitude 2.5+ earthquakes to have occurred within the prior 24 hours.Īccording to data collected by Aon, California has experienced 6 of the top 10 costliest earthquakes in U.S. are along the West Coast plate boundaries of California, the Pacific Northwest and Alaska. The most active seismic areas in the U.S. Issue: According to the United States Geological Survey (USGS), 42 states are at risk of incurring damage from an earthquake.
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