Earthquakes Can Have You Shaking in Your Shoes

Those who have gone through an earthquake know these natural catastrophes can leave severe devastation — destroying buildings, homes, vehicles and possessions.

From the business insurance standpoint, earthquakes represent the worst kind of risk — the one that could happen “someday.” Even high-risk areas along fault zones can go decades with no activity. Out of sight, out of mind.

Commercial earthquake insurance can be very important in helping your clients impacted by earthquakes pick up the pieces.

earthquakeAnd yet, despite the growing frequency of earthquakes and tremors, because of the nature of the risk, most commercial property policies exclude coverage for earthquake damage (including earthquake sprinkler damage, etc.). Coverage is usually only available for earthquake damage in the form of a supplemental policy.

And, while the USGS is cautious about making predictions, if you have any doubt that earthquake activity is on the rise, just run a Google search. There has been news coverage of quakes in California, Oklahoma, Oregon and Nevada (to name a few) in the past couple of months alone, not to mention the study that was recently released, confirming that the New Madrid fault zone, one thought to be dying, is active and could “spawn” future large earthquakes. The New Madrid spans 150 miles, crossing parts of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

Earthquakes can strike suddenly, without warning and can occur at any time, and in any season of the year. That’s why UIG recommends that regardless of location, at some point, you should highlight earthquake insurance awareness for your clients, including the options available, the amounts needed and timeframes that claims can be made in.

The Earthquake Endorsement

Earthquake coverage can be purchased as an endorsement to the standard commercial policy. The endorsement covers damage caused by shaking during an earthquake including structural building damages and the damage to property, contents, business income or other scheduled limits.

As a Separate Policy

Earthquake insurance can be purchased as a standalone policy. Many standard markets either do not offer earthquake as a peril or only offer low limits. A standalone or mono-line earthquake policy provides coverage for this gap.

Costs and Deductible

Earthquake insurance is purchased as a premium per $1,000 of valuation. Premiums vary per location with the western United States having premiums ten times as high as those in the eastern United States. The premiums also take into account age of the buildings and types of structure with wood frame buildings being the cheapest to insure.

Earthquake insurance carries a percentage deductible ranging from 10 percent to 15 percent. This means if the business suffers an earthquake loss of $1 million, the business would be responsible for the first $100,000 to $150,000. A separate deductible buy back product is available for insureds that wish to reduce the deductible exposure on larger properties.

Other Business Policies That Cover Earthquake Losses

Other common business insurance policies may cover earthquake losses without additional endorsement:

  • Commercial Auto — Most standard commercial auto policies cover loss or damage from earthquakes. This can include damage from falling debris, fire, or other events.
  • Workers’ Compensation — Injury to employees at work by earthquake effects is a covered loss under workers’ compensation insurance.

Business Interruption — Some business interruption policies do not exclude earthquakes as covered events, but check with your insurance professional.

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