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Effect of earthquakes on insurance rates in California

On Behalf of | May 10, 2023 | Insurance Law

Earthquakes are a frequent occurrence in California. So, if you live within 30 miles of an active fault in this state, you may face unique challenges when protecting your homes and finances. For you, the impact of these earthquakes can be felt not just in terms of the damage they cause to infrastructure. You may also expect higher premiums and more restrictive coverage on your insurance.

Impact on insurance rates

Insurance companies use complex models to assess the risk of earthquakes in different areas. They consider factors such as the likelihood of earthquakes based on recent volcanic activity, the type of soil, and the age and quality of buildings. So, the nearer you live to an active fault line, the greater the risk you face when there’s an earthquake. You are more likely to get higher insurance rates.

For example, the Ridgecrest earthquakes in 2019 were the largest earthquakes to hit California in two decades. The quakes caused significant damage to homes and businesses in the area.

Concerns about the potential for even larger earthquakes in the future made insurance companies re-evaluate their risk models. They have re-adjusted their rates accordingly. Thus, residents near the area got higher insurance premiums compared to others.

Expectations for insurance coverage

In California, homeowners’ insurance policies generally do not cover damage caused by earthquakes. Instead, homeowners must purchase a separate earthquake insurance policy or a rider to their existing policy.

However, in 2020, the California Earthquake Authority (CEA) announced changes to its policies that would increase coverage limits and make it easier for homeowners to purchase earthquake insurance. The CEA’s new policies provide the following:

  • Up to $200,000 for personal property damage
  • Up to $1.5 million for building damage
  • 5% to 25% deductibles of the coverage amount

The CEA also offers a new option for homeowners to purchase additional coverage for items such as pools, detached structures and personal liability.

Homeowners in California need to review their insurance policies and understand their coverage options for earthquake damage. By being proactive and informed, Californians can better protect themselves against the risks of earthquakes and ensure they have the coverage they need in a disaster.