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 Member Update
IMs It Affordable? By Newfront Insurance
any property owners today • Wood Frame. Consists of all wood walls, do not bother purchasing ceilings, and flooring. This is viewed favorably earthquake insurance due since wood is flexible and can sway with seismic to perceived high costs and movement.
limited coverage. Often, we are
asked: “Is earthquake insurance affordable?” The answer is, “Yes, it is.”
California considers Earthquake Insurance another type of “CAT” (catastrophic) coverage that is underwritten by several domestic and international carriers and has been the last of the CAT coverages to start experiencing rate increases, albeit moderate, due to the presently strained state of the Property Insurance marketplace.
The Property Insurance marketplace in the U.S. has paid over $300 billion in claims since 2017 due to the variety of natural disasters and other occurrences such as wildfires, hurricanes, social unrest, and COVID-19, which has caused underwriting companies to take significant increases and reduce their financial capacity (the insurance limits offered) on each insured account to recover profitability and minimize their exposure to losses. Although the insurance marketplace has seen increased underwriting and pricing sensitivity caused by hurricane and strong wind, and wildfire exposed property, underwriters are writing profitable Earthquake Insurance policies because there have not been many destructive earthquakes recently that have impacted the insurance marketplace, and underwriters’ reinsurance contracts still provide them with enough financial backing to take on seismic activity risk.
While wildfire exposed property has seen three-digit rate increases and hurricane/wind exposed property has seen, on average, 20% rate increases year over year, earthquake coverage has seen only 10% - 15% premium increases this past year.
A variety of factors are considered when pricing Earthquake Insurance, however, here are a few criteria that can have a large impact on underwriting and pricing:
Different types of building materials react differently to seismic activity with some materials being more flexible, and accordingly, less prone to being damaged or destroyed, than others. Building age also impacts underwriting because older buildings are generally not as structurally sound as newer buildings. Here are the four main building types:
• Joisted Masonry. Consists of masonry walls (generally, concrete or brick) with wood floors and ceilings. This is not as favorable for earthquake coverage because masonry walls are not flexible and are more prone to damage or failure.
• Masonry / Non-Combustible. Consists of pure brick, concrete, or steel frame. Steel frame is viewed favorably, as the material is ductile and can bend considerably before breaking. Concrete and brick are brittle and tend to crack or crumble under seismic force.
• Fire Resistive. Generally used in high rise buildings and has a combination of steel frame and concrete with several earthquake retrofitting measures. This is viewed very favorably due to enhanced retrofitting and ability for the ability to sway with the seismic movement without being damaged.
Buildings that have been seismically retrofitted or varying soil types can also make a difference in the underwriting process.
• Earthquake Retrofitting. Extra structural protection is a way to minimize or mitigate the damage to any building. This is especially important in older and soft-story buildings, as underwriters generally view them as less structurally sound.
• Soil Type. Are you on bedrock, clay, or soft soil (artificial landfill)? Earthquake severity and damage can vary based on the softness of soil and sediment. As seismic waves travel through the ground, they amplify as the soil gets softer and is more prone to liquefaction.
If not thoroughly reviewed and negotiated, Earthquake Insurance policies can be restrictive in the level of coverage offered and can leave you paying higher deductibles with a false sense of security. Here are a few coverages that should always be in any Earthquake Insurance policy:
• Replacement Cost. Replacement costs allows

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