Upcoming Events

2005 Telecom & Biotechnology Conference

Wednesday, October 5, 2005, 7:30 to 11:30 a.m., Hyatt Vineyard Creek Hotel & Spa, Santa Rosa

E-Mail Express

Name:

Company:

E-mail:

Phone:

No rush to quake policies after Gulf disasters

EXPERTS CITE COST, WHICH COULD RISE AFTER HURRICANES

NORTH BAY – Even though California earthquakes have registered some of the costliest insurance losses for catastrophes in the U.S. and scenes of destruction from Gulf hurricanes are fresh on people's minds, few homeowners and far fewer commercial property owners are buying quake insurance.

The reason: cost, which may go higher in the wake of an estimated $60 billion loss from Hurricane Katrina.

With the 9/11 terrorist attacks and downturn in the stock markets hitting the insurance industry, earthquake insurance has been "prohibitively expensive," said Peter Schmale, chief executive officer of Farallone Pacific Insurance Services.

The Novato-based property casualty insurance agency writes about $38 million in annual premiums for all kinds of insurance, with nearly 60 percent of that for commercial property owners.

$722 million in premium volume

According to the California Department of Insurance, direct premiums written for earthquake coverage in California totaled just $985 million in 2004, representing only 1.61 percent of the total property casualty premiums written in the state and less than 20 percent of what consumers pay for basic homeowners insurance. The agencies do not break down the total into residential and commercial policies.

About 13 percent of homeowners have earthquake insurance, according to the Insurance Information Institute and insurance officials say far fewer commercial property owners have the coverage.

Property insurance policies for business owners generally cover damage due to wind, wind-driven rain and fire, according to the Insurance Information Institute. Flood and earthquake damages usually are excluded and must be purchased separately.

Mr. Schmale said earthquake insurance is available, but he doesn't expect the hurricane to cause more Californians to purchase it. Again, cost is the driving factor.

"In areas where you need it less, its more affordable," he said. "If you wanted to buy insurance in Sacramento, it's cheap, but if you want it in the Marina in downtown San Francisco, you'd probably be better off spending your insurance money somewhere else."

Factors like soil type beneath a building, the type of parking and the age of a building determine how much a business owner will pay and whether or not an insurance company will cover that owner for earthquake losses.

Mr. Schmale said he has commercial clients who pay earthquake premiums of anywhere from $2.20 per $1,000 of insurable value plus a 5 percent deductible for an office building in Novato to $12.26 per $1,000 of insured value plus a 10 percent deductible for several buildings in San Francisco.

Katrina losses could boost rates

With the insured damage done by Katrina expected to absorb much of the reinsurance industry's capacity, analysts said the cost of earthquake insurance likely will rise. Reinsurance is what insurance companies purchase to cover losses above what they can afford to cover.

The insurance companies that don't offer commercial earthquake insurance refer clients to agents such as Matt Fuller, president of Fuller Insurance Services in Montclair, who said Californians are more likely to buy earthquake insurance after a major earthquake. Following the 1994 Northridge earthquake in Southern California, from 10 percent to 15 percent of his commercial clients bought earthquake insurance.

"It's much lower now," he said.

That earthquake did $20 billion in property damage including $12.5 billion in insured losses, according to the Insurance Information Network.

Mr. Fuller said catastrophes like Hurricane Katrina likely will affect California's earthquake insurance market by limiting the insurance companies' capacity to write coverage.

"If the reinsurers take a hit, obviously that will go to their ability to write for California for earthquakes," he said. "If their rating gets downgraded at all, that would have impact also."

On the other side, Mr. Fuller said hurricanes in the gulf might drive more insurers to the West Coast, which could bring prices for commercial earthquake down somewhat.

Book of Lists Online

Telecom Valley Guide