Those who have experienced a major earthquake often say that such disasters are more traumatic than hurricanes because there is usually little or no warning or time to seek shelter. Even tornados, while very unpredictable, arise in stormy conditions that often allow people to seek shelter. Most earthquake forecasts can only offer probability estimates regarding the chances of an event taking place over the next several years. Preparation and planning ahead of a disaster becomes the key to survival.
According to P&C National Underwriter, the next big California earthquake could occur in the near future. University of California-Irvine and Arizona State University researchers have examined seven hundred years of quake history and found that large quakes are much more common than previously believed:
UC Irvine and Arizona State University researchers charted earthquakes going back 700 years by digging trenches and taking charcoal samples. The research team found quakes have occurred on one portion of the fault—the Carrizo Plain—every 45 to 144 years, which is much more frequent than the widely accepted belief that an earthquake occurs every 250 to 400 years, and also more frequent than the 235-year average used in recent seismic hazard evaluations.
While precise records of events that took place centuries ago are not available, geological sampling can reveal a great deal regarding historical experience. Researchers can only tell us that the probability of a strong quake has increased but cannot offer real time warning systems that would give individuals time to seek shelter. As a result, preparation is the only way to guard against loss of life and insurance is important to address property damage.
Changing estimates of the probability of large quakes could lead insurers with significant quake exposure to re-evaluate premiums at which policies can be written with reasonable expectation of long term underwriting profits. According to the P&C National Underwriter article, only 12 percent of California residents have earthquake coverage which is down from 33 percent in 1996. This figure could decline further if the true risk of quakes is higher, thereby leading to less affordable premiums that cause residents to drop coverage.
Earthquake hazards are not unique to California. As we reported in July, the New Madrid fault could cause significant damage to western Tennessee, eastern Arkansas, southern Missouri, and parts of Kentucky. Further advances in seismic studies will allow insurers to better assess the true risks of a disaster and price insurance accordingly.
Disclosure: The author owns shares of insurance companies exposed to earthquake risks.