Most California residents are not insured against earthquakes

There’s a 1-in-5 chance of an earthquake stronger than the 1989 Loma Prieta quake hitting the Bay Area within the next three decades, according to federal scientists. Yet few residents have taken steps to insure their homes against the threat of another deadly and destructive quake.

In 2023, just 1.5 million California households had earthquake insurance, according to the California Department of Insurance. That’s about 12% of eligible homes — in line with the national statistic, even though California experiences far more and far more expensive earthquakes than do other states.

Typical homeowners, condominium or renters insurance policies in California don’t cover the cost of property damages, lost belongings or hotels if your home is affected by an earthquake. That means millions of California residents would find themselves bearing the entire financial burden by themselves if and when the Big One hits. 

It’s not hard to understand why earthquake insurance has relatively few takers. Coverage is expensive, and with a dearth of large quakes in Northern California since 1989, the threat of losing your home to an earthquake feels far away to many younger California homeowners.

California’s largest earthquake insurer, the California Earthquake Authority, also recently took steps to reduce benefits.

Starting last year, the CEA lowered the maximum amount of coverage for damage to personal property from $200,000 to $25,000. It also removed the option to select a 5% or 10% deductible for homes that are insured for more than $1 million or that were built prior to 1980 with a non-slab foundation and have not been retrofitted. 

The decision was motivated by inflation and the rising cost of reinsurance — insurance for insurance companies — which has gotten more expensive due to repeated natural disasters driving up rates, according to the insurer.

Coverage for damage caused by seismic activity used to be included in residential insurance policies. Now, a typical policy only insures against damage caused by fires that follow earthquakes, such as the deadly blazes after the 1906 earthquake or in the Marina after the Loma Prieta quake. 

It all stems back to the 6.7-magnitude Northridge earthquake in Southern California in 1994 — the most expensive earthquake in the United States in terms of insured damage, and the overall 10th most expensive natural disaster in the world, according to the global risk management firm Aon.

After the quake, insurers quickly started raising their rates for earthquake insurance, at times by more than 100% at once, the Chronicle reported in 1995. Many other insurers stopped offering new homeowner policies altogether in order to limit their exposure — a striking parallel to what’s happening in California now. 

Some insurers still offer private market earthquake insurance, making up about a third of policies in California. But the majority — just over 1 million households in 2024 — get their insurance through the California Earthquake Authority, a nonprofit insurer created by the state Legislature in the wake of the Northridge-induced insurance crisis. Insurance companies that don’t offer earthquake coverage themselves partner with the CEA to offer coverage to their clients.

In 2023, the average CEA premium was about $925, while the average premium for private market earthquake insurance was $885, according to the department’s data. But prices broken down by coverage amount are cheaper from the CEA — and have been declining over the past decade, according to the Department of Insurance’s data.

The CEA, which is a nonprofit insurer, lowers rates when market conditions are favorable enough to do so, and has lowered rates several times over the past decade, a spokesperson told the Chronicle. But since the end of last year, earthquake insurance prices have trended modestly upward due to reinsurance and reconstruction costs, the spokesperson said.

Like a home insurance policy, the exact cost of earthquake insurance depends on what deductible you choose, how much coverage you sign up for and characteristics about your home — including what it’s made of and its proximity to major fault lines. The CEA offers an online premium calculator to estimate what it might cost to insure your home against earthquakes.

Also like home insurance, property owners can qualify for discounts by completing seismic retrofits. The CEA also offers what they call Brace + Bolt Grants to eligible homeowners, which can provide up to $3,000 for retrofitting to lower the cost of earthquake insurance.

More than 18,000 homes were damaged in the Loma Prieta earthquake and nearly 1,000 were destroyed. Moody’s RMS estimates the quake caused more than $900 million in insured losses in 1989 terms. But Moody’s estimates a modern Loma Prieta quake could cost $4 billion in insured losses, the insurance publication Property Casualty 360 reported.

Reach Megan Fan Munce: megan.munce@sfchronicle.com