Earthquake Insurance, aka difference in conditions, gives homeowners a stable foundation
The ground beneath our feet usually feels solid. But an earthquake can shake, rumble and rock our world, causing major property destruction in the matter of just a few seconds.
An earthquake is the result of a sudden release of energy in the Earth’s crust that creates seismic waves. A U.S. Geological Survey estimates there are 500,000 detectable earthquakes in the world each year, of which 100,000 can be felt and 100 cause actual damage. Southern California alone averages more than 10,000 earthquakes each year. While most of these are neither felt by the general populace nor cause any major damage, the risk of a property owner sustaining substantial loss from an earthquake must not be overlooked. That’s why obtaining earthquake insurance is important, particularly in high-risk regions.
Earthquake insurance, commonly known as Difference In Conditions (DIC), is a form of property insurance that pays the policyholder in the event an earthquake causes damage to their property. Most ordinary homeowner’s insurance policies do not cover earthquake loss. Similar to flood insurance, earthquake insurance policies usually feature a high deductible. And as with flood insurance, earthquake insurance can be a wise investment, because if an entire home is destroyed by a quake, such a policy often turns out to be highly cost effective for the policy holder/homeowner.
Rates for earthquake insurance depend largely on location and the probability of an earthquake. The cost of the policy may also be less expensive for homes made of wood, which can withstand earthquakes better than homes constructed of brick and mortar.
In the past, earthquake loss was assessed using a collection of mass inventory data and was based mostly on the opinions of various experts. Today, it is carefully estimated using a damage ratio (DR), which measures the earthquake damage dollar amount relative to the total value of a building. Another method commonly used is HAZUS, a high-tech computerized procedure for scientifically calculating loss estimation.
As with flood insurance and insurance on damage from a hurricane or other large-scale disasters, insurance companies must be careful when assigning this type of insurance, because an earthquake strong enough to destroy one home will probably destroy dozens of homes in the surrounding area. If one company has written insurance policies on a large number of homes in a particular city, then a devastating earthquake will quickly drain all the company’s resources. That’s why it is so critical for retail brokers and agents to make sure they are utilizing an expert wholesale broker.