Earthquake insurance on unstable ground

It’s getting harder and more expensive to find earthquake insurance in the state of Missouri, and especially in areas that need it most near the New Madrid fault, according to a report by the state’s insurance department.

The report estimates that property valued at $110 billion is “exposed to significant earthquake risk but is not insured.”

“We are very concerned about the state of our earthquake insurance market in Missouri,” state insurance Director Chlora Lindley-Myers said in a statement.

In the past 30 days there were 20 measurable earthquakes in the New Madrid area, so while we may not feel it, there’s still activity. The US Geological Survey estimates that the probability of a magnitude 6.0 or greater earthquake over the next 50 years is between 25%-40% and a 7%-10% chance of having a repeat of the 1812 earthquake.

A “major” earthquake, according to one assessment mentioned in the report, would injure or kill 86,000 people in an eight-state region.

“Three days after the earthquake, 7.2 million people are still displaced and 2 million people seek temporary shelter. Direct economic losses for the states total nearly $300 billion… .”

Missouri is the third largest market for earthquake insurance behind California and Washington, but insurers are leaving the market entirely or refusing to issue new policies in Southeast Missouri, the report finds. Those who do sell policies require deductibles up to 20% of a home value ($20,000 for a $100,000 home), while premium prices have increased.

In Butler County, according to the report, average annual earthquake premiums have increased from $64 in 2000 to $324 last year — an increase of nearly 404%. Stoddard County has seen a 519% increase while Dunklin County jumped 808% to $514.

The number of residences with earthquake coverage has dropped 40.3% in Butler County since 2000 to just 17%. Only 11.2% of homes are covered in Dunklin County.

Missouri Insurance Coalition Executive Director Brandon Koch told the Associated Press increased development in earthquake-prone areas, plus older homes not built to withstand intense shaking, contribute to rising costs.

“Especially in those areas that are more prone to earthquakes, the cost is going to be more significant,” Koch said. “Because if a big earthquake hits, there’s going to be widespread damage, and it’s most likely to be catastrophic.”

The uncertainty of if and when an earthquake will strike and the fact that when it does it will be a catastrophic event is the opposite of how insurance companies manage the risk.

Following the 1994 Northridge earthquake, California faced a similar problem. Many homeowners found it hard to impossible to find basic insurance to the point that 95% of the market had either stopped or had severely restricted sales of new policies.

The state legislature created a “basic, no-frills mini policy” that any insurer could sell and also formed the California Earthquake Authority as a not-for-profit, publicly managed, privately funded entity to provide insurance. It currently covers two-thirds of the earthquake insurance polices sold in the state.

Unlike California, not all of Missouri residents need earthquake insurance and insurance companies cannot spread the risk such as covering a home or car.

While the report issued Monday didn’t offer any solutions, it did paint an alarming picture.

It’s as if everyone in Southeast Missouri is living in the flood zone but there’s no National Flood Insurance Program to help.

Maybe that should change before it’s too late and the ground starts shaking again.