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Earthquake Insurance Flood Insurance Homeowners Insurance

Are you insured against “the big one?”

Right now it’s difficult not to talk about and think about what’s going on in Japan. Reuters is reporting that in the 1.8 mile band along the coast that was most affected by the earthquake and tsunami, there’s about $24 billion in insured property. In the four prefectures hardest hit, the total is about $300 billion.

Unfortunately it will likely be weeks before an accurate estimate can be achieved and who knows how long to repair the damage. Some of the risk modeling firms interviewed for the Reuters piece said getting an accurate damage figure may be impossible because no one anticipated an earthquake of that magnitude in that location. The last one in that area was 30 years ago and it was eight times weaker.

The economic losses are estimated to be in excess of $100 billion, but that figure is likely to fluctuate as damages radiate outward in the weeks to come — for instance a contracture of available auto parts to assembly plants in the United States and a likely shortage of consumer electronics made in Japan.

In the context of what we discuss here, you have to ask yourself, am I insured against the most likely disasters in my area? People who live in regions with an earthquake risk (think California) already know you have to carry special earthquake insurance. Homeowners, did you know your homeowners policy won’t cover flood? Or that if you live on the Gulf Coast you have to have a separate wind policy? If you survived Katrina you know that insurance game. No wind coverage? Oh, your home wasn’t destroyed by flooding, it was the wind. No flood policy? Oh. The wind’s to blame.

With no desire whatsoever to in any way “capitalize” on the misery of others, take away an insurance lesson from the catastrophe in Japan. Are you adequately covered in the event the unthinkable occurs?

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Earthquake Insurance Flood Insurance Homeowners Insurance Hurricane Coverage

Industry Begins to Ponder Role of Climate Change

In browsing around today, I ran across a report from Reuters about insurers struggling to factor in the growing risks from climate change. The article was in specific reference to the massive floods in Australia and Brazil, but what caught my eye was that the industry, unlike our politicians and even our scientists, are very practically just accepting the obvious. Something is massively up with the climate.

As the article pointed out, a warmer world means more flooding, more droughts, rising sea levels, cyclones — basically things happening in your part of the world that just haven’t happened there before. In Texas, for instance, our already hot summers are now blistering hot, with the number of consecutive days of more than 100 degree temperatures climbing each summer. That’s harder on cars, harder on roofs, and harder on people with health problems.

How do we begin to translate these kinds of changes into our personal insurance pictures? It may mean we need to consider types of catastrophic coverage that haven’t been relevant before. One of the most measured statements in the article was from the SEO of an insurance company in Singapore.

“I believe climate change will add something to the losses we see already but I don’t believe losses will be dramatically changing. It’s just going to make the losses worse.”

So. If you live in an area that has traditionally flooded every ten years, you may want to ask yourself, if that’s becoming five. Did the water get just “that” much closer to your back porch last time? Do you want to risk it coming in the back door next time? How many tornados did your area have last year compared to the year before? Do you need wind coverage? Will your present homeowner’s coverage take care of a corner of the garage getting blown down the road?

Always remember that insurance is a matter of risk assessment on your part as well as on the part of the company itself. You know where you live and you know what’s likely to happen.

You may want to take a cue from the fellow quoted in that article on mine subsidence I wrote about Monday. He said his home was 60 years old and in 60 years there had been no mine subsidence in his area, yet he bought the insurance. Why? Because it could happen and all the factors were there for it to happen.

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Earthquake Insurance

Earthquake Insurance in Tennessee?

An earthquake in Memphis, Tennessee? That’s a joke, right? Actually not. Memphis sits in the New Madrid seismic zone, a region of the American heartland that gets 150 to 200 tiny earthquakes every year — so small they can only be detected by sensors. But experts say the region, which stretches from Arkansas to southern Illinois and includes parts of western Tennessee and Kentucky will get a big one.

When was the last “big one?” The winter of 1811-1812 according to the U.S. Geological Survey. And how big is “big?” There’s a 7 percent to 10 percent probability of a 7.5. to 8 point event. Lower that to a 6 point, and the probability jumps to 25 percent to 40 percent.

The threat is considered serious enough that the Shelby County emergency management agency (a county that includes the city of Memphis) makes seismic monitoring and earthquake readiness a part of their regular business. There’s a Center for Earthquake Research Information at the University of Memphis and its director says the “big one” is “inevitable.”

A 7.5 to 8 point quake would likely cause damage across the whole region, with a 6 point doing a good job of messing things up locally. Should residents go out and buy earthquake insurance? Most likely not.

Insurance is a product that by its very nature exists to hedge your bets. It’s a matter of what “might” happen. In some regions what’s likely to happen. Even with a 40 percent probability for a 6 point shake up, however, this region is just not historically prone to major earthquakes, a fact that insurance risk profiles will take into account. Seriously, the last one “big one” was 198 years ago!

I read these stories and I think about the first time I heard a prediction that the world would end the next day. I went to my father and he listened to my anxious recounting of what I’d seen in the newspaper. “If it does end,” he said, “what are you going to do about it?”

Overall, the fact that the New Madrid area is seismically active is interesting. Even if I had a house smack in the middle of the seismic zone, that’s about as far as I’d go. Would I take my chances that the “big one” will happen tomorrow? Yeah. Earthquake insurance in Tennessee? Pass.

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Earthquake Insurance

California Revamps Earthquake Maps, Adds 50 New Faults

California residents without earthquake insurance might want to rethink that decision. Why? Because geology officials in the Golden State have recently released an updated seismic activity map of the state – the first such update since 1994 – and it includes more than 50 surface fault lines that have been discovered in the last twenty years. The new map was unveiled during the 150th anniversary celebration of the California Geological Survey, which also presented an updated version of a second map identifying the composition of rock and soil.

According to state geologist John Parrish, the maps can help guide decisions about where to build schools and hospitals, and where construction standards should be higher. “These maps are used to make a lot of other maps, to map landslides … for tsunami coastal mapping. They can tell you what kind of a surface you’re building on, and how close you are to a fault,” Parrish said.

The new maps don’t merely show fifty new faults – they have interactive digital version linked to Google maps, and they also correct distortions leftover from a previous digitizing attempt that left some geologic features more than half a mile from where they were actually located.

As for the fifty new faults added to the roughly 15,000 present in California, while they’re new to the seismic activity map, they have been mapped before. Some of them announced themselves years ago, including the system responsible for 1999’s 7.1 Hector mine quake, which, thanks to the epicenter in the middle of the Mojave Desert, didn’t cause much damage despite its magnitude, though others, like the fault which caused 1994’s Northridge quake are not on the map, even though that system wrecked most of downtown Coalinga. This is because they are “blind thrusts” with no depictable surface ruptures.

Chris Wills, supervising engineering geologist in charge of the project said that the new map, “…really puts the earthquake hazard in context: Where do our earthquakes come from? Where are the most active faults distributed in the state? Where are the most recently active faults that we would tend to worry about most in the state of California? Where are they less common?”

The statewide map is an addition to existing, localized seismic mapping projects where are required by California law. Since 1971, the state geologist has been required to map surface ruptures as an aid to planners in preventing the construction of buildings designed to be used by people on active faults. A newer 1994 law requires the mapping of additional seismic hazards, like landslides and liquefaction.

Since 1998, the National Hazards Disclosure Act has required real estate sellers or their agents to inform potential buyers if a property is located within one of these areas.

As new as the map is, Wills observed, it’s already out of date, because the April 4th quake that struck Baja California at a magnitude of 7.2 produced surface ruptures north of the U.S.-Mexico border. “Anytime you try to do a compilation of everything you know about a state you lag behind studies of an individual area,” he said.

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Earthquake Insurance

Moody Downgrades California’s Earthquake Rating

The California Earthquake Authority (CEA) has reported that Moody’s Investors Service has affirmed the A3 rating on the Authority’s 6.169% fixed-rate Series 2006-B revenue bonds, due to mature July 20, 2016, and downgraded the rating outlook from stable to negative. Specifically, Moody feels that the risk to bondholders is written into California law, in the form of a provision allowing for, “…the possibility that state authorities may curtail CEA’s activities under certain circumstances.”

In response, representatives of the CEA pointed out that the provision was on the books when the bonds were originally issued, and that it is also counterbalanced by another statute which states that the state Insurance Commissioner may not in any way, “…impede or in any manner interfere with the full and timely payment of principal, interest and premiums on revenue bonds of the authority.”

Moody’s elaborated on their original outlook, stating that the CEA’s rating could return to “stable” if they can “…maintain its claims-paying capacity at levels that can absorb losses at or above a 1-in-500 year return period” for the next 12 months.”

According to the CEA, the first nine months of that twelve-month period already hold enough reinsurance contracts and other claims-paying resources to maintain a capacity equal to or above the proscribed level, and that it intends to maintain that 1-in-500-year return level – or improve it – during 2011, as has been the case every year since the 2006 bonds were issued. CEA CEO Glenn A Pomeroy made a statement to the press, “While the CEA is pleased that the A3 rating on the bonds has been affirmed, we believe Moody’s decision to change the rating outlook is unsupported by the facts.”

The Earthquake Authority also shared that under the most recent scientific and loss-modeling calculations, including the Uniform California Earthquake Rupture Forecast by the Southern California Earthquake Center, the U.S. Geological Survey and the California Geological Survey; the Next Generation of Ground-Motion Attenuation Models, CEAs expected earthquake losses to its portfolio had been revised downward, and their claims-paying capacity has tracked those expected losses.

The CEA said it “…looks forward to and anticipates Moody’s re-evaluation and return to a stable outlook in 2011.”