Earthquake Insurance
90Earthquake Insurance The Best Deal?
Earthquake insurance is a form of disaster insurance, and with the current swarm of earthquakes in Mexico and California earthquake insurance is a topic much in the news.
Earthquakes have been around for a lot longer than earthquake insurance. As our society develops more and more sophisticated building and cities the cost of a earthquake increases exponentially.
Earthquake Insurance a Late Starter.
Insurance is a surprisingly ancient concept. The ancient Babylonians and Chinese both developed the concept of commercial insurance so that the loss of a ship didn't financially destroy the merchant. There are written records of insurance policies dating back to the second millennium BC.
Earthquake Damage - San Fransico 1960
In modern times insurance against the risk of fire was invented after the 1666 Great Fire of London which destroyed 13,200 buildings. Benjamin Franklin popularized the idea of fire insurance in the United States and introduced the concepts of refusing to insure some building (all wooden) which were too high a risk, and conversely, promoting techniques to reduce fire risk.
When the 1906 earthquake flattened San Francisco over 80% of the city was destroyed not by the earthquake itself, but by the subsequent fires which burned out of control for many days. Its even possible that owners of damaged properties actually burned their own properties down. That's because at the time most property was insured for fire but not for earthquakes. The insurance industry paid out $235 million (some $5.69 billion in today's dollars).
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Earthquake Insurance A Risky Business
Many Californians are either under insured or uninsured. New Zealanders, who live in a country equally earthquake prone part of the Pacific are almost all covered by insurance - what's the difference.
In the New Zealand model every home is covered up to NZ$100,000 by a government-guaranteed fund. Every house that has home insurance, which is maybe 80% of the stock as insurance is a requirement if the home is mortgaged, is covered up to the agreed value or replacement cost of that policy. In contrast earthquake insurance in California is not compulsory - insurance companies do not have to participate in the California Earthquake Authority scheme which provides earthquake insurance - and that fund is not government guaranteed or funded.
A different approach to earthquake insurance occurs in Italy. Most people are uninsured and the government pays for reconstruction after the event as required. In effect the country self-insures and pays for damage as and when required rather than paying for insurance premiums, including the insurance companys' profits.
The key to a good insurance scheme is one that provides good coverage for almost all property owners, at an affordable price, but without the risk of bankrupting the insurer. The risk needs to be spread over as large a base of policies as possible to reduce that risk. This should be a lot easier for a large country such as the US than a small one such as New Zealand.
Or maybe the best approach is self-insurance either by the individual or the country?
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Shaking ground I can handle hurricanes scare the hell out of me! I guess it depends on what you are used to!
Yeah, that's true but you can run away from a hurricane, you can't run away from the ground! LOL!
And I thought that the whole insurance concept was something new!!
Very interesting, I don't have to worry about hurricanes or earthquakes... our problem is the floods, I've been living here almost 5 years now and we have been flooded twice :(
Great Hub once again Liz,
We had a quake here about 15 years ago that shook things but didn't cause any damage. We were laying in bed and I thought somone had driven a truck into the wall. My insurance agent tried to sell me earthquake insurance then but that was the ony quake in the 35 years I had lived there.
With this information I may change my mind.
Very informative.
Once again we see that another country takes care of its citizens. In this case New Zealand and the government sponsored earthquake insurance.
Oh wait, the idiot conservatives in the US will probably say that is socialism and we can't have that. Are there any spaces left down in your part of the world, I'm tired of the country that is only for the super rich.
@agrande - the main problem I have with the US model is how good is the underwriting - if there is a big shake - will the company be solvent to pay the claims? Oregon gets so few quakes - I'm surprised. It only takes one of course - in fact my home town Wellington last had a bad shake in 1941 - does that make it more or less likely for there one to be next week - for Wellington - there is no statistical correlation the earthquakes are random as far as we know. San Andreas fault in Ca is different - the earthquake swarm they are getting now (and it seems Mexico is getting as well) - is typical - its also good news - a swarm seems to release tension on the fault without any real damage.
@Lischini - I am sure you are right but I would rather pay more tax and not have the prospect of the incompetence of Hurricane Katrina clean up efforts! In fact I don't pay more tax either - its the simplest easiest tax system in the world - I pay 30% fullstop - it doesnt matter if I am self-employed or working for someone else. I don't pay sales tax or import duties. I don't pay payroll tax or capital gains tax. Its easy and fair and it seems to provide enough revenue to pay for things like earthquakes and unemployment - and I like living in that type of society Thanks for commenting
When I read this I came to think about the people in Haiti... What a disaster, God bless them. Thanks for a great hub!
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David Verde says:
10 months ago
Isn't it kind of scary to know you live in a place that needs insurance from the ground shaking? Then again, I live in a place that gets major hurricanes so I guess you just deal with it.