Insuring Against the Great Shake

Updated on Nov. 4; see bold below.

By Mary O’KEEFE 

Last week was the California Great ShakeOut. Many people throughout Southern California took time to focus on the “what if” when a major earthquake rumbles through their area.

The Great ShakeOut started in 2008 and was designed to get people thinking about what they would do when the next big earthquake occurs. Since that beginning the Great ShakeOut has become an annual international drill. Although when most people hear “earthquake” they often think of California, earthquakes can shake several states across the nation and continents throughout the world.

The drill aims to remind people to prepare for an earthquake, including having enough water on hand. The Federal Emergency Management Agency (FEMA) suggests having at least one gallon per person per day for at least two weeks. The drill also alerts people that various earthquake warning applications are available to be downloaded. Insurance is also something that should be explored when preparing for an earthquake.

The California Earthquake Authority [CEA] was one of the participants in the Great California ShakeOut which lasted for one minute on Oct. 21.

“Earthquakes can strike at any time, but they don’t have to be devastating. The Great California ShakeOut drill is a valuable opportunity to practice what we need to do in order to survive and recover from a damaging quake,” stated Janiele Maffei, CEA chief mitigation officer. “Many homeowners don’t realize how fragile their house is until it’s too late. The good news is that we have grants available to help strengthen older houses against earthquake damage with a seismic retrofit – something many Californians should consider.”

The CEA is a non-profit that is privately funded and publicly managed. The agency serves as a marketplace for earthquake insurance; it receives no money from the state budget. A five-member board, including California’s governor and insurance commissioner, oversees the agency, according to CEA.

The CEA was formed after the Northridge Earthquake in 1994 essentially to keep the earthquake insurance industry intact, Maffei said.

In 1984, the California State Legislature passed a mandatory law that though earthquake insurance was excluded from a homeowner’s regular insurance policy separate earthquake policies had to be offered.

“They required that if [insurance companies] were writing homeowner policies they must offer that supplemental insurance,” Maffei added. Then the Northridge Earthquake happened.

Insurance companies found themselves paying customers a lot more than they anticipated since many more homeowners had purchased supplemental earthquake insurance over the last decade.

“Modeling of loss was in its infancy and [insurance companies] weren’t prepared,” she added.

Due to the mandatory law that was in place and the extreme costs of the Northridge Earthquake, many insurance companies were going to leave the state.

“The State of California created CEA. We manage the insurance pool behind the large number of insured in California,” Maffei said.

An earthquake policy must be offered but the homeowner/renter is not obligated to purchase it.

People assume that earthquake insurance is expensive but there are several options that can affect the costs. Kim Mattersteig is a licensed insurance agent with the office of Alan Schultz State Farm in Glendale.

“For renters [earthquake insurance is relatively] inexpensive,” Mattersteig said.

For homeowners, the costs will depend on the age and framing of the home and what type of foundation it is on, she added. Whether the house is retrofitted will also affect insurance costs.

Mattersteig said it is also important to talk to the insurance agent about options of coverage that includes a realistic view of how long residents may be out of their home if it is red tagged after an earthquake. It could take months to rebuild or to find another place to live. Having insurance that covers those costs would be of value.

Insuring personal property on the separate earthquake policy is something that might be challenging to determine – but Mattersteig offers some advice.

“I always say if you take your house and turn it upside down whatever falls out is personal property,” she said.

The costs of earthquake insurance will also vary depending on the policy’s deductible, the amount of personal property, the cost construction to rebuild the home as well as other factors.

For information, including grants available to retrofit property, visit the CEA website and/or contact Kim Mattersteig at Alan Schultz State Farm Insurance, (818) 729-9690.