Quake Insurance? California Pushing People To Say Yes To Coverage
Glenn Pomeroy wants you to take the warnings seriously. He's the CEO of California Earthquake Authority. It's his job to ensure the state, and the people in it, are prepared for a catastrophic quake.
While many Californians now know the mantra to 'drop, cover and hold on,' there's growing concern by Pomeroy and others that people and companies are not adequately covered for the days after: nearly 90 percent of California homeowners do not have earthquake insurance.
And barely one out of 10 commercial buildings is insured for quakes, according to the California Department of Insurance.
The stakes are huge: about one-fifth of the nation's mortgage debt is held in California. A recent study by the nonprofit R Street Institute estimates that Fannie and Freddie's uninsured earthquake exposure at more than $200 billion. The report warns that private banks, too, are exposed which it calls "a failing for the banking industry and a potentially catastrophic taxpayer hit if a major quake catastrophe occurred."
"Every time there's a natural disaster we have to learn again the cold reality that the federal government isn't in the business of rebuilding homes," Pomeroy says.
The publicly managed not-for-profit was set up by the state legislature after insurance companies stopped underwriting policies or jacked up prices following the devastating 1994 Northridge quake in Los Angeles.
By back-stopping risk, the earthquake authority, over time, has helped dramatically lower rates – by more than 50 percent – while substantially increasing coverage and flexibility. You can now decide what deductible you want — from as low as 5 percent up to 25 percent.
Homeowners who've had a seismic upgrade to their foundation, a retrofit, are eligible for up to a 20 percent discount in coverage.
But despite those and other big changes, the agency is still having a hard time getting enough Californians to take a second look at coverage.
"We battle misconceptions all the time," Pomeroy says with a sigh.
State insurance figures show that about 13 percent of California homes have quake coverage.
But Pomeroy says the real number is lower. If you take into account homeowners who've paid off their mortgages and don't have insurance at all, barely 10 percent of homes are covered for a quake.
"The fact that that about 90 percent of the homes in California are in that unprepared state is a great concern," Pomeroy says. ."Seventy-five percent of the nation's earthquake risk is right here in California. Scientists say we're going to get hit again – it's a certainty."
Indeed, seismologists say the state is overdue for another major quake.
A recent scenario by the U.S. Geological Survey estimates that a major quake on the Hayward fault on the east side of the San Francisco Bay – a hypothetical magnitude-7.0 earthquake - could collapse 5,000 buildings and destroy 50 thousand single-family homes from subsequent fires and shaking.
There's still a stubbornly widespread misconception, CEO Pomeroy says, that the state or federal governments will step in.
In fact, the Federal Emergency Management Agency caps individual disaster aid at about 33 thousand dollars. The actual pay-outs are almost always much lower.
"Earthquake insurance is not covered in a homeowner's policy and the federal government's not going to come in and rebuild homes." IS THIS FROM A PAMPHLET OR FROM OUR FRIEND POMEROY?
But the quake insurance industry and emergency planners are still haunted by the fallout from the '94 Northridge temblor.
That 6.7 magnitude violently rattled north-central Los Angeles damaging homes and businesses. Parts of freeways cracked or collapsed.
In all, at least 57 people were killed and hundreds more were injured.
The quake cost an estimated 40 billion in today's dollars for property losses – about half of that to homes.
But maybe 24 years is long enough to fade memories.
Today, near the epicenter in Northridge – close to an apartment complex pancaked crushing 16 people – there's little sense of urgency about the next temblor.
"The deductible is so high on a house like this, it would be probably $250, 000," guesses 64 year old homeowner Nicoli (she didn't want her last name used). She lives just down the street from where the apartment collapsed.
She doesn't have quake coverage. "I would rather save that money, actually. I just don't think it's an adequate insurance for the money that you're going to spend on it," she says.
Even those who live near ground zero of one of the nation's costliest natural disasters who have quake coverage seem conflicted about keeping it.
"It just seemed so overpriced," says 76-year-old homeowner Jerry Barricklow.
She had coverage 24 years ago. It helped her recover from minor damage to her home, she says. So she kept it.
"It just seems like where you feel so helpless about earthquakes. But it (coverage) is something we can do."
Emergency planners and insurers still battle that perception that quake insurance is just something of an overpriced luxury, at best.
Northridge sparked a quake coverage crisis in the 1990s. Many companies simply stopped writing policies getting stung with nearly 20 billion in payouts.
And for the companies that remained, consumer prices soared. "Those that were still in the market were increasing rates dramatically doubling or tripling or increasing by 10 fold," Pomeroy says.
Faced with expensive, bare bones policies and high deductibles, homeowners bailed on coverage in droves. The state has been working to get those people back ever since.
Today, L.A., Orange and San Diego counties lead the state's population centers in the percentage of homeowners who get quake insurance, according to numbers from the state department of insurance.
But planners say they're nowhere near where the state should be.
Experts caution that insurance is just one piece of the protection puzzle, not a panacea.
First responders and others want more people to have a disaster plan in place and regularly updated quake emergency packs with first aid, food, clothes and other supplies.
But many agree expanded insurance coverage numbers will help mitigate potentially devastating losses. Under state law insurance companies have to offer earthquake coverage when they sell homeowners' policies.
Some of the authority's challenges in building up numbers are from messaging and PR woes of its own making.
There were those quake insurance ads with the incongruously soothing music.
Or the head scratching "California rocks" ads featuring redwood forests and sunny beaches imploring folks to bring bug spray and "always have sunscreen at the ready. Like preparing for the possibility of an earthquake."
"Some of our ads" in the past, Pomeroy concedes, "were a little too bright and sunny."
After years of not trying to scare people into action, the non-profit earthquake authority has pivoted with a new overall message: the risk is real. Will you be ready?
The good news for advocates of quake coverage, Pomeroy notes: the number of people searching for estimates and buying them has risen in the last two years, according to CEA numbers, especially every time a natural disaster hits somewhere in the U.S. or world.
"From hurricanes (on the East Coast) and fires in California and that a big earthquake in Mexico," Pomeroy says, "and suddenly people's awareness was front and center and insurance agents tell us their phones are ringing off the hook." [Copyright 2018 NPR]
