Earthquake Risk and Insurance

My last post covered “Sweating The Big Stuff” by insuring against big losses and managing the cost by being smart (high deductibles, package discounts, etc.). For our California clients, the big stuff includes earthquake risk.


Standard homeowners’ policies or business property policies do not cover earthquake damage.

If you want earthquake coverage, it is available for additional cost via a policy rider, a stand-alone policy or the California Earthquake Authority, all of which are available through Desert Insurance Solutions. Typically the deductible on earthquake is 15% so it only pays in the event of a major loss. In California, around 20% of property owners have earthquake insurance. Why so few?

Here are some of the reasons people have to rationalize not having earthquake insurance:

  • It won’t be so bad. Wrong. 2014 happens to be the 20th anniversary of the 1994 Northridge earthquake (6.7 mag) that killed 63 and caused $25B property damage. Click here to see what a 6.7 earthquake can do.
  • An earthquake is not likely. Wrong. Click here for an interesting map where scientists estimate earthquake probability based on fault location. The Coachella Valley is located on the San Andreas Fault. Scientists estimate a greater than 99% chance of a 6.7+ earthquake within the next 30 years.
  • It’s too expensive. Because earthquake risk is very real, insurance is not cheap. Most buyers of earthquake insurance have high deductibles on their underlying policies (they self-insure the small stuff), then use the savings to insure the big risks.
  • FEMA will bail me out. Loans to rebuild may be available, but they will need to be repaid.
  • I’ll just drop my keys at the bank. And lose your equity and credit.

Some property owners have a limited budget for insurance and decide to go without earthquake coverage. But you can’t make that decision unless you know how much it costs. The decision to buy earthquake insurance is a balance between risk management and premium expense that should be made with real numbers in the context of your overall insurance program. Call me today at 760-564-6800 if you want me to lay out your options.