For many homeowners in California, the threat of an earthquake is always there. The news has recently widely reported that there is a 99% chance of an earthquake over 6.7% magnitude in Northern California in the next 30 years. As everyone knows, Northern California has some of the most expensive real estate in the entire country. For many of us, the equity in our homes is our biggest asset or close to the biggest asset. We have two ways to try and protect our homes against a catastrophic earthquake that will eventually come. Many people explore earthquake insurance. The issue with Earthquake insurance is the premiums are high relative to homeowner’s insurance, and are not included in home owners insurance. Earthquake Insurance deductibles are extremely high, in most cases the deductible is 10%-20% of the total policy limit. This means deductibles can range from 100k-200k. In the event of a catastrophic earthquake, a homeowner whose home is devastated may have to pay 100k-200k just to fix/replace their damaged home. Earthquake insurance is not bad, because there is no question a catastrophic earthquake will hit Northern California in the near future. But earthquake insurance is a costly policy to mitigate the risk of an earthquake wiping out one of our largest assets. Another way to mitigate the risk and protect your home against the inevitable large Northern California Earthquake is to earthquake retrofit your home. Typically, these retrofits in The San Francisco Bay Area run between 8k-12k for a standard plan. Typically, these plans are permitted over the counter and the work can be completed between 3-5 days.
The likelihood of a severe quake for Californians is never far away either, a major quake with a magnitude of 7.0 or more strikes ever ten years, according to the CEA (California Earthquake Authority) and a moderate earthquake of 5.5 or more strikes about four times a year. All told, there are more than 2,000 earthquake faults in California, the CEA said.
The U.S. Geological Survey predicts that there is a 68% chance of a 7.0 magnitude earthquake in the Bay Area in the next 30 years, either along the San Andreas fault, which ruptured in 1989 and 1906, or the Hayward or Calaveras fault. The chance of a 6.7 magnitude quake over the next 30 years is now predicted at 99%, the USGS says.
Newcomers to the Bay Area who have not 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 RMS.
The most recent major quake in the Bay Area occurred on Aug. 24, 2014 quake in Napa, just north of San Francisco, and was a 6.0 magnitude quake, causing more than $250 million in damage while killing one person and injuring more than 100.
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 Newark, Calif.-based company.
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.
Incredibly, a large percentage of homes in Northern California are still not ready for a catastrophic earthquake with the risk of a large earthquake looming. At minimum, people should protect their largest asset and retrofit their homes. A combination of having a fully retrofitted home and earthquake insurance is the best scenario, but if the cost is too high at minimum you should retrofit your home.