Mark Geoghegan has hit the ground running with his new reinsurance blog, blog-re, as you can see from this thought-provoking post about the lack of earthquake insurance in the standard U.S. homeowners package. Mark points out that the U.S. is due for a large magnitude quake, and besides the well-known San Andreas fault in California, there are also significant fault lines in the Cascades in Oregon and Washington, the New Madrid zone from Arkansas to Chicago, and a fault that runs from Philadelphia to Chicago. Any significant quake could cause losses of from $40 billion to more than $100 billion.
I was thinking about this very thing last week because we had a 2.7 magnitude quake right under downtown Portland. As you may know, if you check your homeowners policy, it not only excludes floods and war, it also fails to cover earthquakes. You can purchase a special earthquake endorsement, but it is not cheap. The overwhelming majority of people don’t carry earthquake insurance. Cost is part of the reason, because as you have perhaps found out if you have ever been injured in a car accident, most people regard insurance not as an economic transfer to themselves in the future but as an imposition at best and a rip-off at worst, and they carry the least insurance they can get away with, even if the cost of tripling their coverage is only an extra $100 a year. Also, earthquakes just aren’t that big a worry to most people because they don’t happen that often, and when they do, they usually don’t affect you.
Fire in the wake of an earthquake might be covered, but in the scenario Mark lays out, the coverage fights sound an awful lot like the current battles over wind-vs.-water after Hurricane Katrina. Mark wonders if insurers are missing an opportunity and failing to respond to a market need. It’s a good post, read it all.