Did you know that there are about 500,000 earthquakes a year around the world? Sensitive instruments can detect even the smallest seismic activity. About 100,000 of those earthquakes can be felt, and approximately one hundred cause damage each year. The southern California area alone experiences about 10,000 earthquakes annually, but most of them are not felt by people.
As a California commercial property owner, recent earthquakes may have you thinking twice about earthquake insurance. The big question to ask is this: can you even get insurance coverage for your building? People across the U.S. often assume that California residents and commercial businesses all carry earthquake insurance. Due to the geographic proximity to fault lines and frequent seismic activity, that is definitely a reasonable assumption. So it may come as a surprise that only 12% of property owners have managed to get affordable earthquake insurance in California. Cost is certainly one important factor that turns many property owners away; inability to even get coverage is another big issue.
Earthquake insurance in California comes at a high premium. Often, in a struggling economy, many property owners choose not to take on the extra expense of this type of insurance. Even with coverage, the earthquake deductibles are high and the amount of coverage is usually not enough to fully cover the potential damage costs. Commercial property owners should also consider an additional set of facts as they determine what needs to be done to protect their buildings:
In the last century, 39 states experienced tremors.
90% of Americans live in earthquake zones.
Seismologists believe that the West Coast is long overdue for “The BIG ONE” – a magnitude 8 or 9 earthquake.
Earthquakes are the most expensive natural disaster from which to recover.
Engineering and construction technology have greatly improved over the last ten to fifteen years. Most buildings that were constructed prior to this century are not likely to meet current state and local building codes.
Property owners are still responsible to pay off the balance of a mortgage, even if the property is damaged or destroyed.
When considering earthquake insurance for financial protection in California, the real question is whether or not there is a way to get accepted for coverage with affordable rates.
As you are probably aware from your initial financing process, building safety and PML (Probable Maximum Loss) ratings are extremely important to lenders. Banks and financial institutions, including insurance companies, are primarily concerned with reducing the amount of risk they carry. Did you know that lenders who request a PML of less than 20% are usually satisfied when a thorough and professional seismic retrofit has been completed? When a commercial property has gone through a seismic retrofit, lenders typically feel that measures are in place to reduce the likelihood of catastrophic damage and destruction that would result in the owner walking away from their loan.
Insurance companies may choose not to write coverage in the future for earthquakes due to past losses on insured buildings. Insurance rates have increased 3 to 6 times since 2005 and it is quite common for insurance companies to deny coverage altogether. The PML rating is often very high on older buildings due to construction methods used at the time they were built. Experts expect that many older buildings will fail in the event of a strong quake, without being strengthened with a seismic retrofit. For instance, statistics have shown that un-reinforced masonry buildings fail more than any other type of building during an earthquake. When commercial building owners do not schedule their property for a seismic retrofit, any number of issues can occur when the earth rocks and rolls. Not only will the building potentially collapse, the resulting damage could impact neighboring properties.
A seismic retrofit is one of the best ways to make earthquake insurance affordable and possible. The best way to estimate the amount of a reduction in earthquake insurance with a seismic retrofit is to get a quote. Saunders Commercial Seismic Retrofit in the Bay Area can perform a multi-faceted inspection of your property and will include a “before and after” retrofit insurance quote upon request. By partnering with several insurance providers Saunders can easily demonstrate the potential return on investment when performing a seismic retrofit. For more information on how to get affordable earthquake insurance and to request a quote for a seismic retrofit, call Saunders Commercial Seismic Retrofit today!
Northern California Office