Last week in the Los Angeles Times, opinion writer and California insurance commissioner David Jones discussed a potentially disastrous problem with the insurance industry in California: despite the state’s scary history of large earthquakes, only about 11 percent of residential homes across the state have earthquake insurance.
Why do so few homeowners have earthquake insurance? It all started in 1985, when California passed a law requiring insurance companies to offer earthquake insurance to property owners. The result was not what lawmakers imagined: almost all insurance companies simply decided to stop selling homeowners insurance altogether instead of offering risky earthquake insurance. California responded by creating the California Earthquake Authority, which offered residential earthquake insurance. Still, most have not purchased coverage. Here’s why:
- Denial – many people, although they know that a large earthquake will likely strike at some point in the future, don’t think that it will happen to them, or that their home will be affected.
- Cost – many people don’t want to pay for an extra insurance policy on their home, even if it means saving money in the long run in the event of a disaster.
- High deductibles – the CEA policies come with ten to fifteen percent deductibles that scare some people away from getting earthquake insurance.
Jones adds that for those who need more convincing to get an earthquake policy for their home should think back to twenty years ago, when the 6.7 Northridge earthquake shook the state and resulted in dozens of lost lives, $42 billion in damage, and 300,000 residential insurance claims.
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