Earthquake Insurance ... am I nuts or am I missing something
 

I sit on the board of a condo association. Yeah, I know. Another topic for another time. We're being asked to renew our EQ insurance, The improvements are replacement valued at $50 million. The policy coverage is $5 million AFTER we pay the first $15 million in damage THEN there is a 5% deductible and THEN they pay the 5 mil. The premium is $40 grand.

Looking at this in the cost/benefit context I fail to see the benefit. The 5 million appears to be only attainable if we have a catastrophic quake and no where allowing replacement to occur. Am I nuts, or should the vote be NO!.

Looking for a little sanity here. Any Insurance brokers or anyone live thru Northridge with some experiences. TIA to the Pelican brain-trust.

I am a broker. I don't deal with EQ but we do deal with hurricane/ cat (catastrophe) coverage. Is the $15M described as retention? Are you sure the deductible doesn't say $15M or 5% which every is greater? Are you missing a catastrophe policy that would cover the difference? Either your description of coverage is wrong or you are missing coverage.

Where is this? The midcoast is far from the San Andreas fault. There are smaller faults along the coast, but they produce small earthquakes, few and far between. The Paso Robles quake is an example of the worst you can get. Modern, woodframe structures did fine in that quake.

Scrap the EQ insurance and just buy fire insurance. Just make sure if there is an EQ that the house burns down....

A waste of money if you ask me. Like Charlie said, wood frame structures usually don't suffer major damage even in a major earthquake. When I was a kid, we had a 7.2 or 7.6 quake (depending on who you heard it from). Our house had a cracked foundation, but not enough to require repair. The brick chimney on our fireplace fell down off the roof. The major damage as far as buildings was concerned happened to brick homes and multi floor (small town & two floors was the max) brick structures down town. I think some companies offer it because they are required to, so they make the requirements ridiculous.

Insurance companies are required to have reserves. These reserves will not come CLOSE to satisfying claims in a catastrophic quake. An arbitrator may decide to pay claims at 30 cents on the dollar.

No thanks.

IIRC, the only way to get EQ insurance in CA is through the California Earthquake Authority, even though your ins. broker gets you the policy. Their website says they have about $4.2 Billion in equity. Apparently it is 99% invested in US Government Financial instruments. I would have guessed that the state had written IOUs against it. Apparently not. $4.2 Billion isn't a whole lot if they have a major EQ.

Drcoastline
 

The 15 million which is our initial obligation is labeled Retention. Oncce that is dealt with THEN we have a 5% deductible, then they pay their 5 mil coverage.

This is California.

We owe them 25% of the premium if we cancel the policy.

59GS

Retention is a deductible. You must have two policies?

Is the 5% deductible on a sepreate policy?

Having a 25% earned premium says to me you are dealing with an excess company. Lloyd's of London maybe?

I think you are reading it incorrectly.

Huh? I am in Oregon and do earthquake insurance all day long. We have the same kind of faults as CA. It is expensive but what you described sounds just dumb. PM me if you want to talk.
Larry

This is why most people don't have it. The deductibles are huge. You would have to pay for a fallen chimney or a twisted frame yourself. If you have a single story wooden structure, what would have to happen to give you damage beyond the deductible? ....... Fire! And that is of course covered by your fire insurance.

As a final note, here in CA the house isn't the most expensive thing anyway. The lot usually is, unless you have some mansion.

G

Actually, the faults are different in Oregon. Oregon is in a subduction zone, while CA is dominated by a transform (strike-slip) fault, the San Andreas system. CA quakes come more often, are fairly shallow, with a max magnitude of about 8.0.

OR quakes don't happen as often, are very deep (centered in the subduction zone), but they can be huge, with a magnitude over 9.0. Because they are deep and large, the damage covers a much wider area. The 1964 Alaska quake was a M9.2 event in the same subduction zone. Someday, Portland or Seattle are going to be leveled. Not a bad idea to have earthquake insurance when the 9.2 hits right below you.

My dad asked me one day should he get EQ insurance? I asked him how long have U lived in the house...His answer 30 years. I asked with all the EQ's that havehit has there ever been any damage? His answer was None. So I told him he had answered his own question.

Further those minor little faults have a potential of a 7+ magnitude. Big Bear and Landers are examples..Most faults are not even known to exist.

I paid earthquake insurance premiums to State Farm from 1976 through 1994. I was approximately 10 miles from the Northridge quake epicenter. Had a foundation crack and some minor damage to the brick floor. Outside, the story was different. The driveway/motor court had had some cracks, and several opened up +1/2" -- it was like tectonic plates. It was a large concrete area, over 4K square feet, and cost about $17K to remove & replace. The foundation cracks cost about a grand to fix. Ironically, the total was equal to all premiums paid for earthquake insurance. After Northridge, the policy changes excluded "outbuildings" and other structures like driveways and put a 25% deductible on dwelling damage. I did not renew.

Accumulating more info ...

It is a single policy, it is with Lloyd's. Retention/deductible $15milion, THEN a 5% deductible on each building, then they pay their $5 million. Does NOT cover fences, streets, or any common area improvements (pools, rec center, etc).

All the buildings built in early 90's have been bolted to foundations and shear wall retrofit done.

This is pissing money off the end of the pier, IMHO. I think the homeowners are way better off sticking the 40K in an EQ fund. In 10 years we'd have close to half a mil; in 20 we'd have a million plus. That appeals to me way more than forking over $40K to people who will not in all likelihood ever pay us a dime.

I'll vote no and lobby hard for sufficient votes to defeat this. Thanks for all the input, guys.

Ok, Good luck but something still doesn't jive with the info provided. Is this a stand alone EQ policy? Is there another property policy? A fire insurance policy if you will?

Are you sure Lloyd's isn't retaining the $15,000,000.00 risk which essentially lowers the deductible on your property (fire insurance policy)? I''m thinking you have a $15,000,000.00 EQ deductible on your property policy (15%) and you bought a policy to cover the deductible.

What you are explaining sounds very similar to what we used to write for hurricanes here in NJ on our coastal condominium complexes.

Our carriers would issue property policies (fire insurance) with huge wind/hurricane deductibles 20%, 30%, 40% depending on the age, construction location of the structure. We would then go to Lloyd's and buy an insurance policy on the deductible (a buy back policy). Our insured would "retain" a portion of the deductible 2%, 5% and Lloyd's would pay the balance.

something is missing from the equation.

59GS, if you are able to take the premium equivalent and bank it securely, that's going to be a good alternative.

In my case, the FEMA loan I got at 3.X% seemed like a better deal than the insurance company payoff.

In a related note, RMS redid the calculations of quake risk and premiums in CA are supposed to go down. Oregon, however, is supposed to go up!
Larry