The Missouri Department of Insurance has issued a newÂ â€œEarthquake Insurance Market Reportâ€Â that highlights some sobering facts about Missouriâ€™s insurance marketâ€™s readiness to recover following a high magnitude quake in the New Madrid fault area, which runs through the southeast quadrant of the state, extending from the Bootheel northwards to St. Louis and beyond.
In a statement, the DOI explained that the New Madrid area of Missouri experienced a series of powerful earthquakes during the winter of 1811-1812, with experts estimating the primary quakes ranging in magnitude from 7.0 to 7.5. Were an earthquake of similar magnitude to occur today along the New Madrid fault, losses would be staggering.
The risk modeling firm AIR Worldwide has estimated that a New Madrid recurrence would produce insured losses of $120 billion (2011 dollars). Such losses would only be rivaled by a repeat of the 1906 San Francisco earthquake, with estimated losses of $93 billion, according to the DOI.
A joint assessment by the Mid-American Earthquake Center of the University of Illinois and the Federal Emergency Management Agency predicted that a major New Madrid event could entail total economic losses of $300 billion, surpassing the highest total economic loss of any natural disaster in U.S. history.
The state of the market
Missouri is the third largest market for earthquake insurance among the states, exceeded only by California and Washington. The DOI noted, however, that over the last 20 years, the earthquake insurance market has significantly contracted, with many insurers leaving the market entirely, while others refuse to issue new policies in the New Madrid area. Even among those insurers still willing to sell coverage, stricter underwriting standards made some types of dwellings ineligible for coverage.
Those who can obtain coverage find they are required to â€œself-insureâ€ to a much greater extent than in the past. Deductibles up to 20% of the dwelling value are not uncommon, and â€œstackedâ€ deductibles are often applied separately to the dwelling and contents, according to the DOI.
The DOI said that while coverage has contracted, the price of coverage has increased significantly, in some instances by more than 500% in some counties over the past 15 years. Coverage has become significantly less available and less affordable in the areas that require it most, the DOI pointed out.
According to the DOI:
- On average, earthquake premiums in the six counties that comprise the New Madrid area have increased by nearly 700% between 2000 and 2018, and in one county by nearly 1,000%.
- In 2000, over 60% of residences in the New Madrid area had earthquake insurance.Â By 2018, the rate of coverage had declined to just under 14%, a decrease of 46 percentage points.
- In other high risk areas outside of the New Madrid zone, take-up rates also substantially decreased, from 67.6% to 46.3% over the same period.
- Nearly half a million residences not covered for earthquake losses are located in a Missouri county rated seven or higher on the Mercalli scale (a measurement of vulnerability to a New Madrid earthquake).
- In the six county New Madrid area, only one insurer (among those surveyed) offers a deductible of less than 10% of the insured value of the residence. More than 27% of the market requires a deductible of 15% of higher.
Based on the Missouri market share for homeowners insurance:
- Carriers with 12.5% of the home insurance market either write no earthquake coverage anywhere in the state or only renew existing earthquake policies but wonâ€™t issue new coverage.
- 31% of carriers write somewhere in Missouri but will not provide new coverage in the New Madrid area.
- 41% issue some new coverage in the New Madrid area but will not insure some types of construction.
- Only 26.6% of the market issues coverage in New Madrid on the same basis as elsewhere in the state.
This pieceÂ first published at law.com.