25 years after Bay Area quake, most don’t have earthquake insurance

On Oct. 17, 1989, Arthur Reyes was in his dorm room at Stevenson College, on the picturesque hilltop campus of the University of California at Santa Cruz, when his bed started to shake violently.

“I looked across my dorm room to see books flying off the shelf, the door swung open and the light fixture fell from the ceiling,” he recalled.

It was 5:04 p.m. From its epicenter just 10 miles north of Reyes, near the Loma Prieta Peak, the 7.1 magnitude quake roared along a 22-mile stretch of the San Andreas fault through the Bay Area, collapsing a portion of the Bay Bridge and the Cypress Freeway in Oakland, and crushing homes in the Marina District in San Francisco and the Pacific Garden Mall in Santa Cruz.

When it was over, 63 people were dead, more than 11,000 homes destroyed and $6 billion in damage done.

See Photos: Loma Prieta earthquake, 25 years later.

Today Reyes is 43, a biologist with Genentech and married with three children, but he’s still struggling with the Loma Prieta quake, in a different way.

For many of Reyes’ generation, who are now entering their peak earning years and looking to purchase bigger homes to accommodate families, the aftershocks of the Loma Prieta quake, as well as the 1994 Northridge quake in Southern California, are financial. He pays $1,200 annually on top of his homeowner insurance for an earthquake rider on his Palo Alto house, and the price increases every year. The average premium in Santa Clara County is $1,447, according to the California Earthquake Authority (CEA).

Bay Area earthquake, 25 years later

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On Oct. 17, 1989, a 7.1 magnitude earthquake hit Northern California, killing 63 people and destroying 11,000 homes. It even stopped the World Series. MarketWatch’s Daniel Goldstein reports.

“As a homeowner, it’s frustrating dealing with these insurance premiums,” he said. “We might get priced out of our home if our premiums keep increasing.”

Many California home buyers are in similar binds. The expensive deductibles related to earthquake insurance are sometimes as high as 15% of the value of the home, which has many homeowners giving the insurance a second thought.

Premiums are determined by a combination of a home’s replacement value and its proximity to a high-risk fault. And for homeowners in Northern California, where some of the most valuable real estate in the country lies in an earthquake hot zone, that makes for an expensive financial double whammy.

An expensive one-two punch

The CEA was set up in the aftermath of the 1989 and 1994 quakes to help provide low-cost insurance, after many property and casualty insurance companies pulled out following the quakes. According to the CEA, average earthquake insurance premiums statewide rose from about $540 a year in 1998 to $830 in 2005. The CEA instituted a decrease in premiums later that year, but they have been rising ever since, now averaging about $750 a year.

But the average figures don’t really illustrate the cost in some of the highest-risk and most populous areas. The average premium in 2014 on earthquake insurance in San Francisco County was $2,156; it was $1,800 in Alameda County (along the Hayward Fault) and nearly $1,000 in Los Angeles County, according to the CEA.

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The areas of greatest earthquake risk in the San Francisco Bay Area. (Map by Risk Management Solutions.)

In contrast to Florida, where hurricane insurance is often mandatory, earthquake insurance is entirely optional in California. And as premiums have gone up, more homeowners have opted out. The number of earthquake insurance policies in California has dropped to just 10% of homes statewide, down from 34% in 1994, according to Risk Management Solutions, a Hayward, Calif.-based company.

Newcomers to the Bay Area who haven’t experienced a big quake and are put off by the insurance price are partly responsible for the low numbers of home buyers signing up for earthquake insurance, according to Patricia Grossi, senior director of global earthquake modeling at RMS.

Article source: http://www.marketwatch.com/story/25-years-after-bay-area-quake-most-dont-have-earthquake-insurance-2014-10-17

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