in the Wake of the Mid West Earthquake... Is Earthquake insurance right for you?

Though Louisville has never been the epicenter of an earthquake, that doesn't mean those living in the area should ignore the possibility of a big one coming and causing major damage to homes and businesses.

That's the message delivered by emergency-planning professionals and those selling insurance in the state.

Instead, they say, buying earthquake coverage should be something that is considered when purchasing property insurance because Louisville is situated near the New Madrid fault, which roughly follows the Mississippi River and borders Kentucky, Missouri, Illinois, Tennessee, Arkansas and Mississippi.

Three powerful earthquakes shook the region near New Madrid, Mo., in the winter of 1811-12, causing landslides and disrupting river commerce but no major quakes have been felt since.

A similar event today would cause some $161 million in damage to Louisville, based on a computer simulation model, according to Doug Hamilton, director of Louisville-Jefferson County Emergency Management/MetroSafe.

"Vulnerability is higher downtown because so many of the buildings there are older," Hamilton noted.

On the Louisville Metro Government matrix for emergency planning, earthquakes are ranked as moderate risk hazards -- in the same category as severe winter storms, he said.

Flooding and severe thunderstorms pose the most severe risks, followed by hailstorms and tornadoes, both high-risk hazards.

Nevertheless, mild tremors are not uncommon in Kentucky. On Jan. 31, 2007, two occurred in the state: a 2.8 magnitude event near Bardwell, 138 miles southeast of St. Louis, and a 2.7 magnitude tremor near Pikeville, 110 miles southeast of Lexington.

Premiums for earthquake insurance grow
Because of this potential risk to property, many insurance professionals suggest that homes and businesses buy policies that cover earthquake damage -- advice consumers seem to be taking.

Premiums for earthquake insurance in Kentucky grew from $25.84 million in 2002 to $35.72 million in 2006, a 38.2 percent increase, according to data compiled by the American Insurance Association in Washington, D.C. From 2005, when $31.49 million in premiums were recorded, through 2006, premiums increased 13.4 percent.

This growth in insurance premiums for earthquake coverage likely is a result of more Kentuckians buying earthquake insurance rather than increases in prices, said Julie Pulliam, public affairs director for the American Insurance Association's Southeast Region.

"Still, given the risk, there probably should be more widespread purchase," she said.

Hurricanes had little effect on premiums
Though standard policies typically do not include earthquake coverage, insurers doing business in Kentucky and writing personal lines insurance -- for homeowners, tenants, mobile home owners and personal residential dwellings covered by a farm owner's policy -- are required to offer riders that provide coverage for earthquake insurance, according to Ronda Sloan, communications director in the Kentucky Office of Insurance in Frankfort.

Because earthquake premiums traditionally are based on Kentucky exposure and experience, premiums have increased little if at all in the wake of catastrophes such as Hurricane Katrina, despite what some might think, Sloan said.

"Earthquakes are based on a predictive model since there is no historical data or experience for Kentucky," Sloan said. "Any rate increases have been approximately 5 percent."

She said State Farm Insurance, the largest property and casualty insurer in Kentucky, also has the largest market share of earthquake premiums in the state, with nearly 22 percent.

"Our Louisville market share is very consistent with the Kentucky market share," said Shawn Johnson, public affairs representative for State Farm Insurance in Kentucky, Ohio and Tennessee.

Your Ad Here

State Farm, which also writes commercial as well as personal lines, bases its earthquake rates on a host of variables, Johnson said, including location, construction of the building and deductibles. In Louisville, those deductibles for residences are 5 percent or 10 percent of the insured property value.

"State Farm's residential earthquake rate has been the same for the past 10 years," Johnson said. The cost of Its earthquake premiums -- calculated using a computerized model -- average about 29 cents per $1,000 of residential property value and 31 cents per $1,000 per commercial property value.

Earthquake coverage for businesses
Robert Brunyate, senior vice president for insurance broker Marsh Inc.'s Cincinnati office, said commercial earthquake endorsements can cover the same property as a basic fire policy. "That is, buildings, contents, machinery and equipment, loss of income, extra expense and so on."

However, earthquake coverage differs from fire insurance in that it normally is written on an occurrence and annual aggregate basis.

This means that the limits placed on damages from an earthquake are the same for each occurrence during a policy year and the entire year a policy is in effect, Brunyate said.

In addition, earthquake coverage for larger policies might be limited. For instance, a commercial policy could have $25 million in coverage for fire damage while limiting earthquake coverage to $10 million.

Though availability and limits for earthquake coverage vary by insurer, Brunyate said a "very large majority" of Marsh clients purchase it.

Cost versus risk
Ron Bell, vice president of Underwriters Safety & Claims Inc. in Louisville, said he considers the decision to purchase earthquake coverage as just another consideration in the overall buying process for insurance -- but one business owners should take seriously.

"It's an economic decision for business owners," he said. "It's weighing cost versus the potential of an earthquake actually happening and damaging their business.

"Anybody who has a business can ask their agent to secure an earthquake quote for them," Bell added. "Once they get the quote, they can decide if the cost is an expense they want to incur, based on a low or high probability of an earthquake."

Tips for buying earthquake coverage
If you live in a quake-prone region and you can afford it, the best way to protect your investment is to retrofit and buy earthquake insurance.
Key factors to research and consider in buying coverage are: the financial strength of the companies that will sell it to you, the features and pricing of their policies, the amount of equity you have in your home, your proximity to a fault zone and the age and style of construction of your home and foundation.
If you decide to buy earthquake insurance, shop for limits that are adequate to fully replace your property and cover engineering costs, required improvements to comply with building codes, temporary living expenses, outbuildings, etc.
Don't assume that government agencies or private charities will bail you out with funds to rebuild after a major disaster.

Related Posts

http://soyawannaknow.blogspot.com/2008/04/usgs-detailed-information-on-west-salem.html

http://soyawannaknow.blogspot.com/2008/04/new-madrid-fault-system.html

http://soyawannaknow.blogspot.com/2008/04/earthquake-hits-midwest-usa-on-april-18.html