Earthquakes Not Shaking U.S. Insurance Concerns
LIANE HANSEN, host:
The news from Chile and Haiti may have you wondering, am I covered for earthquakes? Chances are you're not. Regular insurance doesnt pay for quakes and most people dont buy the special policies that do.
NPR's Martin Kaste reports.
MARTIN KASTE: The big one is coming. Stop in for a free quote. Thats the message that went up recently on the letter board outside the Sound Insurance Agency in Seattle. Inside, insurance agent Jane Staldman says the new sign has brought in a few potential customers.
Ms. JANE STALDMAN (Sound Insurance Agency): Well, they ask, whats the big one? You know, and you go, let's see, where have you been?
(Soundbite of laughter)
KASTE: The Northwest is at risk for the same kind of giant subduction zone earthquake that hit Chile. But only about 14 percent of Washington homeowners have quake policies. In earthquake prone California, that number is 12 percent.
Staldman admits that the policies can be hard to sell.
Ms. STALDMAN: The only problem with earthquake insurance: it can be very pricey.
KASTE: Depending on where you live, earthquake insurance can cost thousands a year and deductibles are usually 15 percent, which means on a $500,000 house, the first $75,000 in damages comes out of your pocket.
In fact, the coverage isnt likely to pay for itself unless the earthquake is pretty big. And at that point, Staldman says, there's a tendency to look toward Uncle Sam.
Ms. STALDMAN: A lot of people, you know - well, the government will step in, they think. And FEMA, you know, and things like that.
Ms. NANCY WARD (Regional Administration, Oakland Office, FEMA): I, too, hear that a lot.
Nancy Ward is the regional administration at the Oakland Office of the Federal Emergency Management Agency. She says it's true FEMA would step in with grants and low-interest loans. But you wouldnt get enough to rebuild a whole house.
Ms. WARD: Those loans are woefully inadequate to make someone whole again after a devastating earthquake.
KASTE: Of course, Congress could always decide to provide more money, as it did after Hurricane Katrina. And that seems to be the bet that a lot of people are making on the West Coast - that there are somehow safety in numbers.
Mr. GLENN POMEROY (California Earthquake Authority): There will be pressure on the federal government to try to help.
KASTE: Glenn Pomeroy is head of the California Earthquake Authority.
Mr. POMEROY: But think of the enormous losses that the government is going to have to deal with. The homeowner is going to find there's no reason that anybody the government is going to rebuild their home if it's damaged or destroyed in earthquake.
KASTE: So Pomeroy is on a mission to sell more earthquake insurance. Thats what his organization does. It's a kind of state-sponsored insurance company and he's looking for help from Congress. He doesnt want money, just federal loan guarantees so the Earthquake Authority can borrow money more cheaply and then using the savings to cut premiums, 30 or 40 percent, Pomeroy says.
Mr. POMEROY: We'll get more people covered. There will be less of a need for California, for example, to come to Washington hoping for a big disaster relief package after an event. It's a win-win-win proposition.
KASTE: There is legislation in Congress that would do this, not just for California but also for other disaster-prone states, such as Florida. It's called the Homeowners Defense Act and it's attracted the ire of fiscal conservatives.
Steve Ellis of Taxpayers for Common Sense.
Mr. STEVE ELLIS (Vice President, Taxpayers for Common Sense): People all argue it's a win-win-win. Well, it is until the earthquake hits.
KASTE: Ellis says if the earthquake is really big, even federal loan guarantees might not bring in enough money to cover the losses, and taxpayers could get stuck with the bill. But beyond that, he says, government shouldnt even be in the business of artificially lowering insurance premiums.
Mr. ELLIS: Theres a risk of living along the coast. You know, homeowners insurance and earthquake insurance is part of the price of living in paradise.
KASTE: Of course, paradise is a matter of perspective, especially when you're trying to decide whether to bet your house on the whim of the nearest earthquake fault.
Martin Kaste, NPR News, Seattle.
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