Earthquake and Tsunami Insurance Coverage

Recent tragedies that happened in New Zealand and Japan have once more brought earthquake and tsunami insurance coverage to the top of the list for many people on the North America West coast. In fact, this people live in a high risk area for both these natural disasters and many of us often forget how vulnerable our families and real estate assets are to hazards.

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Typical property insurance policies written in the United States and Canada exclude flood and earthquake damages.

A tsunami is a tidal wave often caused by an earthquake; so, it is a flood and excluded under most policies.

Generally, these perils are only covered by endorsement or special policies.

Earthquake Coverage

The reality is that an earthquake can strike anywhere in the world with potentially devastating effects.

Injury and damage in poverty stricken areas like Haiti, with a poor infrastructure, of course will be much greater than in an area where buildings are sturdier and compliant to earth movement safety standards.

But disaster can strike anywhere and at anytime.

Unlike other insurance perils where a specific deductible amount is shown, earthquake coverage is typically subject to a percentage deductible applicable for each “occurrence”.

This percentage is applied to the limit of insurance on the building.

Another particularity of earthquake insurance coverage is that an “occurrence” spans a specific period of time. Unlike other perils such as fire or water which cause most, if not all, of the damage at a specific point in time, earthquakes often involve a first shock causing some damage followed by aftershocks, which can also damage the same building. Keep in mind that as a building owner, the longer the period of time allowed for a single “occurrence”, the better your coverage is.

You don’t have to forget that quake deductibles are very high and always ask your insurance broker for the lowest percentage deductible available combined with the longest time span for an “occurrence” to be included on your policy.

Tsunami Coverage

Tsunamis and tidal waves fall within the insurance definition of “flood”. A characteristic that distinguishes tsunamis from most other major hazards is that they appear to have no sensible upper limits to the level of losses that they could cause.

There are limits to the level of losses that can occur from earthquake shaking and from tropical cyclones. There are probably limits to the losses that could occur from tsunamis generated by earthquakes.

However, all scientists agree, the upper limit of losses from tsunamis caused by landslides, volcanic eruptions or meteorite impact could be orders of magnitude larger than the potential maximum losses in San Francisco, Los Angeles or Vancouver, Canada from earthquakes. The most severe would be a major meteorite impact on the ocean.

The normal insurance industry approach to uninsurable hazards has been to exclude them totally.

So, tsunami coverage is not currently available to homeowners, but building owners and landlords can easily obtain flood insurance. Those in vulnerable areas should buy flood and excess flood coverage to insure for tsunami events.

Earthquakes and tsunamis cause billions of dollars of direct damage but also result in huge consequential losses.

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