You can get an estimate for an earthquake insurance policy with the California Earthquake Authority.
[1] https://www.nbcnews.com/news/investigations/why-do-so-few-ca... [2] https://www.earthquakeauthority.com/
(a) CEA will quickly run out of money and I won't be covered anyway.
(b) The whole community will be ruined so assuming all of my family is still alive we'd best move somewhere else anyway (and a rebuild or undamaged house wouldn't sell).
(c) Some kind of government bailout or community help program will be available.
For smaller earthquakes, it's likely I'd either fail to meet my deductible or be unable to pay the non-covered portion (which has to be paid out first before they'll begin to pay for further repairs).
Am I wrong, or is there something I'm missing? I wish this weren't the case.
- our equivalent of CEA (EQC) did indeed run out of money, although it’s mostly reinsurance and govt backed
- insurance companies went under, because even for a small city (400k), costs ran to $40 billion
- it’s now very very expensive to get earthquake coverage, in some parts of the country you are paying multiples of what less earthquake prone parts of the country pay, so people don’t bother. so they’ll lose everything next time, and we’ll foot the bill as a country
Scale of California probably means amplification if these effects, hundreds of billions in losses.
I don’t understand why insurance companies can run out of money whenever they need to pay claims. I’m sure they know they’re going to go under, why can’t they get insurance on themselves?
- the building was defective/you didn't have it inspected by our experts, so maybe the foundation already had cracks from the last EQ, in that case we can't pay the claim
- insurance only covers up to 5.0/6.0
- although it was reported as a 7.5, you live 4 miles away from the epicenter, meaning the EQ was likely below a 6.0, in which case your policy doesn't kick in/we'll only pay 30% of your claim
- the EQ cracked a water main/gas line, and most of the damage to your house is from the flood/fire, which isn't covered under EQ policy. try suing the insurance of the utility company.
- we determined that fracking is likely the cause of this quake, in which case it's manmade and not covered. you can sue the oil company though.
- we checked the seismometer and we dispute the USGS reporting that it was a 6.0/7.0/8.0/our geologist has published research saying that current methods of measuring earthquakes are in question. so although we don't need correct science to collect your premium, we do need perfect science to pay any claims. Or if you settle now, we'll pay 40% of your coverage or else you can try to sue us and maybe get paid 10 years from now
- we don't cover the specific region where all the earthquake damage occurred/that requires a different policy
- we only cover incidental/secondary damage, like clocks falling off the wall (which, of course, you must have a receipt for and will be paid minus depreciation and deductible). your policy doesn't cover utility line damage, structural damage, or earth-moving damage.
Both insurers and general reinsurance firms will some times sell their risk to investors (in the capital markets) through vehicles such as Insurance Linked Securities. An ILS provides one form of risk transfer. There are others.
In both cases, if the risk is tied to say, catastrophe insurance, then this offers (investors) returns uncorrelated with the stock market.
In the real world, the government can act as insurer of last resort and use tax dollars to with financing (though these usually are ideally set up with the initial fund).
[1]. https://www.investopedia.com/terms/c/catastrophebond.asp
Most insurance companies bailed out of the business of earthquake insurance after Northridge because when it happens, the claims are enormous. The 1906 San Francisco Earthquake was an indirect factor that lead to the Panic of 1907 due to the high volume of insurance claims.
[1]https://www.marketwatch.com/story/25-years-after-bay-area-qu...
The earthquake was strong enough for a payout if you were located within the zone: https://twitter.com/yourjumpstart/status/1146850926512111616