Earthquake Insurance

[Rick Potter]

Sorry Steve, I meant to say 1.0%, and I cannot correct the above post. In my case, I went from having $1,000 deductible, for all losses, to 1% of covered value of the home. The covered value of my home is $626,900, making my new deductible $6,269, before the insurance will cover any loss.

I complained about it to my insurance company, and they lowered the deductible to $5,000 for the next year, but charged me $34 for it. They said they would probably not do that in the future. Interesting result was that my total bill for the year went down $2.00, of course that was before the $34 surcharge . Whoopeee.

To answer your second question: A $1,000,000 house would have a $10,000 deductible. Interesting also, my first house cost me $13,000.

Note: This is a homeowners policy, not earthquake, which I also mentioned in the original post.

[Evan Patton]

Isn't protection from catastrophic loss the primary purpose of homeowners insurance? I don't really see the point of insuring minor expenses. I can afford the $100 cost of a tow truck and don't want to be charged $12 every 6 months for towing insurance. However, 10% of the value of a home seems excessive. Are you saying that the deductible for a $1M house would be $100K? That is high enough that many people may decide to walk away from the house rather than be bankrupted by it.

Steve

Steve,
I'm not sure what to think about the actuarial science on this one. Either I'm pretty stupid for underestimating the risk, or the insurance companies are using us to hedge. And yes, being in CA I'm looking at a >$200k deductible on top of paying >2.5x my regular annual premium (which already has a high deductible, because in CA insurance companies can choose to drop you if you actually file a claim so you might as well pay for roof damage and broken windows yourself).

Evan

[Jack Lemley]

Steve,

Google northridge earthquake residential damages and you'll find the damage estimates exceeded $13 billion. At the time there were few if any insurance carriers that could have survived financially had they had a significant portion of the market insured for earthquakes without very high deductibles and multiple excluded damages, etc. Those costs would likely be 2 or 3 times higher today. California is one of the most heavily regulated states for an insurer to operate in so the reality it is quite possible things you blame on the carrier should be placed on your state government instead. Insurance use actuaries and loss experience (among other things) to determine premium cost. It is not a "scam" but rather a calculated risk. The state mandates reserves for potential losses. Reserves cannot be invested or otherwise used by the carrier, otherwise they wouldn't be reserves. If you had insurance with a carrier who provided you with all risk coverage and a 1% deductible (and also had say 15% of the market in that area) and the big quake hit your area you would not be able to collect because the carrier go belly up so fast your head would spin. Insuring against potential loss is much like shooting craps in Vegas. If I had a $million+ house in California a $30,000 deductible would be pretty nice in the event I had a total or near total loss. You want to play the tables with no net that is your prerogative but don't accuse the insurance companies of running some sort of "scam" because you think the premium, deductibles, and exclusions are too high or too many. Don't buy it but either way get your facts right and stop throwing around unsupportable accusations.

Off my soap box and will say no more about the subject.

Jack

The high deductible is what keeps me from buying it. Most modern 1 and even 2 story buildings should survive the quake without totally collapsing. The biggest risk would be enough shaking to break all the windows. I figure that the windows could be replaced for less than the cost of the deductible.

To me, it seems like a total scam by the insurance agency. They are required to offer it in California, but they make it so restrictive that it seems like they never pay out.

Steve