Disaster insuranceNapa Valley residents debate necessity of earthquake insurance

Many residents of the Napa Valley in California are weighing the benefits and costs of earthquake insurance in the wake of the 24 August quake, which heavily damaged many homes and businesses in the region.

As thePress Democrat reports, the high premiums of earthquake insurance are deterring many home and business owners, despite the real threat of intensive damage.

“The premium cost is so prohibitive that it makes no financial sense,” said Lynda Jensen, an area resident who lost an entire chimney from her historic home during the latest temblor.

Despite the fact that Napa residents suffered a total of $326 million dollars in damage on 24 August, only 6 percent of them had earthquake insurance, compared to 10 percent of residents on average in many other parts of California. The California Department of Insurance reported that only 9 percent of businesses in the state had coverage.

This has led many in the insurance industry to warn that the lack of coverage may have grave consequences for homeowners, businesses, and the state-at-large if they do not take on the cost. In 2008, the U.S. Geological Survey predicted that there was a 99 percent chance that California will see a 6.7 magnitude or larger earthquake within the next thirty years. As it stands now, the results could be devastating economically as well.

“Should a major quake devastate a city, many California homeowners with little equity in their home likely would choose to walk out of their loans,” said Weili Lu, the director of the Center for Insurance Studies and a professor at California State University. Lenders, she explained, would share the losses since they do not require borrowers to take out earthquake insurance.

“At this moment, we’re not ready for anything,” she said.

Because of this, more and more insurance companies in California are offering deductibles in the amounts of 10 to 15 percent and offering policies which set a separate deductible for the contents of the home or business. On top of this, some are offering discounts for those that retrofit their homes to better withstand a quake. The move is meant to incentivize lessening the damage, which would benefit all involved.

“It does tend to put this back on people’s radar screens,” said Glenn Pomeroy, CEO of the California Earthquake Authority, “And it usually shows up in increased policies.