Geologists meet in California to highlight earthquake concerns
California is no stranger to earthquakes; indeed, thousands of seismic events of varying degrees happen every day in the state. Last week, concerns regarding a massive, nationwide earthquake were drummed up when more than 9 million people throughout the state participated in an earthquake drill. California insurers are well versed in the risks associated with earthquakes in the state. What has many insurers worried, however, are the risks associated with a nationwide catastrophe. The U.S. Geological Survey met with risk professionals in California last week to pass one some dire predictions concerning a major, nationwide earthquake.
Great California ShakeOut calls attention to potential for major catastrophe
Last week, the U.S. Geological Survey, alongside the California Earthquake Authority and FEMA, hosted the annual Great California ShakeOut, which is the world’s largest earthquake preparedness drill. More than 9 million people participated in the drill, which suggests that many people in the state take being prepared for a major earthquake quite seriously. Speaking with risk professionals, geologists with the agency suggested that the state is long overdue for a major, 8.0 or higher earthquake from the San Andreas fault. Such earthquakes typically occur every 170 years, but geologists claim that it has been more than 300 years since a major earthquake was produced by the fault.
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Insurers show concerns for impact of major earthquake
The agency notes that seismic activity from the San Andreas fault is picking up, causing concern for a major earthquake that could affect the lives of thousands, if not millions of people throughout the state and its neighboring territories. Most of the state’s insurance companies are well prepared to handle the financial impact associated with the earthquakes that California experiences on a regular basis, but one that may be similar in strength to the quake Japan experienced early last year may cause some financial tension for many insurers. Apart from property damage and the displacement of a population, insurers are intensely concerned over the potential costs associated with business interruption.
Insurance demand in wake of disaster could have major impact on market
According to the Insurance Information Institute, only 10-to-12% of homeowners have earthquake insurance in California. If a major earthquake were to strike the state and cause significant damage to properties, the demand for earthquake insurance is expected to rise dramatically, just as it had done in the wake of the 2011 quake that rocked Japan. This increase in demand is likely to significantly impact the state’s insurance market.