The Great Quake and the Great Drowning | Hacker News Reader

The Great Quake and the Great Drowning

hakaimagazine.com

25 pointstobinstokes3 comments

I was recently surprised to realize that only about 10% of California homeowners had insurance covering damage from earthquakes. My surprise wasn't that individuals would decide that they couldn't afford the coverage, but that the banks holding the mortgages would not require insurance on their collateral.

This got me to thinking about the financial effects of a major earthquake in the Bay Area. The estimated risk of a Magnitude 8 or greater quake in the next 30 years is about 5%.[2] With or without tsunami, I'd think that quake of this size would shut down most businesses in California for some length of time.

I realize that these companies have multiple offices, but what would the effect be of having no one come to work for a week at headquarters of Google, Facebook, Apple, and Ebay? And all the other companies based in Silicon Valley? Is this risk priced into the market? Or is the sort of black swan that Taleb and others are betting their hedge funds on?

[1] http://ww2.kqed.org/news/2014/08/29/is-earthquake-insurance-...

[2] http://www.mercurynews.com/science/ci_27686200/big-bay-area-...

Nobody gets earthquake insurance. Everyone's betting on getting bailed out by the government. No doubt, FEMA funds will be released and other emergency funds. No US president would be cold-hearted enough (or electorally suicidal enough) to do otherwise. Of course, that doesn't help you if you're dead, but then again, neither does insurance.

Anyway, even if we all had earthquake insurance, the insurance companies would probably go broke and have to get bailed out by the government. So it's probably better that nobody has it.

Also, California is not subject to tsunamis because the fault lines are inland, not off the coast. The biggest risks are collapsing structures (a lot of our housing stock is ancient and goes back to the 50s or 60s), fires, ruptured gas lines, and I think someone was stupid enough to build a nuclear power plant on a faultline.

Excellent read. For those interested, here's a great companion piece: http://www.newyorker.com/magazine/2015/07/20/the-really-big-...

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