RMS report highlights dangers for the property insurance sector in the San Francisco region
The San Francisco region may be struck by a powerful earthquake in the coming years, and the potential damage such a disaster could cause may not be covered by insurance. RMS, a risk management firm serving the insurance and reinsurance industries, has released a new report that highlights the impact that earthquakes may have on the insurance sector. In California, earthquake insurance is becoming increasingly rare, as consumers and businesses alike begin seeing this type of coverage as a financial burden rather than an adequate form of protection.
A powerful earthquake could cause as much as $200 billion in damage in the Bay Area
The report from RMS presents a worst-case scenario for the insurance sector. In the event of a 7.9 magnitude earthquake, an estimated $200 billion in damage could be done. Much of this damage would not be covered by insurance companies operating in the state due to the fact that most insurance policies do not cover the damage caused by earthquakes. This type of coverage must be purchased as a supplement for existing policies. The lack of insurance coverage could create a financially dangerous situation for businesses and consumers.
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Earthquake insurance is becoming more rare in California
The report shows that residential insurance penetration throughout California has dropped by more than 50% over the past 25 years. An estimated 10% of the state’s households currently have earthquake insurance, but the prevalence of this insurance coverage may decline significantly over the coming years. RMS suggests that the Bay Area may have trouble recovering from a major earthquake disaster due to the lack of financial support insurance coverage offers.
Insurers are required to provide earthquake coverage, but homeowners do not need to purchase it
According to state law, property insurers must offer earthquake coverage, but homeowners are not required to purchase this coverage. Typically, earthquake insurance policies cover damage done to structures, their contents, and various other expenses. For businesses, this coverage can provide a financial windfall for any interruption in operations that may be caused by an earthquake.