Another San Francisco Earthquake Imminent, Studies Claim

In 1989, the Loma Prieta earthquake rocked the San Francisco Bay area, killing 63 people and injuring 3,000. The incident happened during the World Series, turning the broadcast into static and forewarning the 6.9 devastation. With the Giants now heading back to the big dance, discussion of the quake is starting to pick back up, and two studies believe that the seismic activity could be on the verge of repeating itself.

The First Study

The Insurance Information Institute (I.I.I.) points out a study published online in the Bulletin of the Seismological Society of America. The study notes that “sections of the San Andreas fault system — the Hayward, Rodgers Creek and Green Valley faults — are nearing or past their average earthquake recurrence intervals.”

Described as “locked and loaded,” there is now a 70 percent chance of a rupture “within the next 30 years, triggering a 6.7 or larger event, the study’s authors claim.

The RMS Study

In the second study  — this one from catastrophe modeler RMS — the next major quake runs the risk of being “financially devastating to the Bay Area economy in part because of low earthquake insurance penetration,” I.I.I. reports.

A worst-case scenario would peg the event at a magnitude of 7.9 while causing more than $200 billion “in commercial and residential property losses.”

In spite of both dire predictions, only 10 percent of households carry an earthquake insurance policy.

RMS resident earthquake expert Dr. Patricia Grossi believes that while the Bay Area “has made significant progress in terms of infrastructure preparedness and retrofitting,” it doesn’t have significant enough penetration in the earthquake insurance market to expedite rebuilding. This means “the recovery from a major earthquake will be considerably harder.”

The RMS authors add that not carrying earthquake insurance means homeowners “may walk away after a quake if the residual value of their property is less than the outstanding value of their mortgage, adding that even customers with insurance “are likely to struggle to meet high deductibles, potentially leading to significant blight and disrepair in badly damaged neighborhoods.”

Low earthquake insurance penetration aside, a 7.0-magnitude quake on the Hayward fault “could produce $25 billion in insured loss across residential and commercial lines of business,” RMS concludes.

So Why Do SF Residents Not Have Earthquake Insurance?

This is a very good question and one that NBC News posed to the experts. According to Glenn Pomeroy, CEO of the California Earthquake Authority (CEA), managers of a state-run pool of earthquake insurance policies, it’s because they don’t realize they’re not covered.

“People think it’s covered in their homeowners’ policy, but it’s not,” Pomeroy said. “We’re out there trying to get the message out to people that it’s not covered.”

Also, California law has not required the purchase of earthquake insurance in spite of the state’s high susceptibility. And many insurance customers find the annual premiums unaffordable with the yearly price tag running anywhere from $800 to $5,000 annually. Furthermore, deductibles are 15 percent the value of a home, meaning that if one owned a $400,000 home — easy to do in California — the out-of-pocket would be $60,000, NBC points out. However, compare that to the full value of one’s home and rebuilding from scratch without earthquake insurance would be a much tougher prospect.

In Summary

Earthquake insurance remains underbought in California and in particular the highly susceptible San Francisco Bay Area. The CEA has plans available and continues to spread the word, but until more people get the message, it will be challenging to navigate the issue. Customers concerned about price and availability should check their options online and see how the prices stack up before swearing off the policy altogether. Just because there are no laws in place requiring it, that doesn’t mean one should leave their most valuable asset vulnerable to chance.

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