Earthquake insurance phased out
Several general articles and links about quake insurance are on this page.
Are We Prepared for our own Disaster? St. Louis Biz Journal
Missouri is the nation's third-largest market for such coverage, but Allstate is ending its role.
By GENE MEYER
Allstate Corp. said it will stop offering optional earthquake insurance throughout much of the U.S. this year to reduce its risk of potentially catastrophic losses.
The planned phase-out beginning this month will affect about 36,700 customers in Missouri, the nation´s third-largest market for the coverage after California and Washington, and about 1,800 in Kansas, said Emily Pukala, an Allstate spokeswoman in Denver.
New sales of the coverage, which usually is offered as a rider to basic homeowners, renters or business insurance policies, will end this week, while existing coverage will end at its next scheduled renewal, she said. The coverage typically covered structural damage caused by the earth shifting.
“Policyholders will still be covered for damages from fires after an earthquake, which is what causes most of the damage,’ Pukala said.
Allstate, of Northbrook, Ill., is the 12th-largest of more than 200 earthquake insurance providers in Missouri, said Matt Barton, spokesman for the Missouri Department of Insurance in Jefferson City.
Other companies are watching the potential costs too. Safeco Corp., Missouri´s fourth-largest provider of earthquake insurance, last year started putting tighter limits on homes it would cover, based on how they were built and similar factors.
No. 1 provider State Farm has no plans now to pull out of the market, “but we are evaluating what´s on the books now to make sure we are not overexposed,’ said Tara Eubanks, a company spokeswoman.
Since Hurricane Katrina, Allstate, which insures about one in eight homes in the U.S., has been moving swiftly to reduce its exposure to potentially widespread claims losses.
The company hasn´t yet found anyone to offer similar earthquake coverage in Missouri or Kansas, Pukala said.
About 5,000 earthquakes can be felt each year in the U.S. Measurable earthquakes have been recorded in 39 states and caused damage in all 50 since 1900. The nation´s costliest quake in recent history was the 1994 Northridge, Calif., earthquake, which measured 6.7 and caused $20 billion in damage.
The largest ever to hit the U.S. include a 9.2 earthquake around Anchorage, Alaska, in 1964; the 7.8 earthquake that hit San Francisco in 1906; and a three-month series of earthquakes along eastern Missouri´s New Madrid fault that topped 8.0 in 1811 and 1812.
The U.S. Geological Survey estimates there is a 25 percent to 40 percent chance that a Northridge force or greater earthquake could hit the New Madrid fault again in any given 50-year period.
-- Gene Meyer (816) 234-4883 or gmeyer at kcstar.com
Allstate dropping earthquake insurance
By Jerri Stroud
The "good hands" people are washing their hands of earthquake insurance, sending thousands of local customers hunting for policies from another insurer.
Allstate Corp. began notifying customers across the country this week that it will not renew earthquake coverage on residential policies. The move is designed to reduce the company's risk from natural catastrophes.
Farm Bureau Town and Country Insurance Co. also has stopped writing earthquake policies in Missouri, but another company, Markel Insurance Co. of Glen Allen, Va., will pick up the coverage for Farm Bureau's customers, according to the Missouri Department of Insurance.
Most other companies continue to write earthquake insurance. However, some insurance companies have severely restricted the kinds of homes they will cover, refusing to underwrite brick homes or those more than about 40 years old. Others have raised deductibles from the 10 percent to 15 percent common with most earthquake policies to as much as 25 percent, agents said.
Allstate's phase-out of earthquake coverage affects 36,742 policyholders in Missouri and 29,565 in Illinois, said Emily Pukala, a spokeswoman in Allstate's regional office in Denver.
Missouri is Allstate's second-largest earthquake coverage market, after Washington state, but the insurer ranks 12th among those providing the coverage here. More than 200 companies sold $72.9 million worth of earthquake policies in Missouri last year, but only about 41 percent of homeowners in the state carry the insurance.
In Illinois, 229 companies wrote $35.6 million in earthquake insurance. Allstate stopped selling earthquake coverage earlier this month and will stop renewing policies Sept. 15. The move affects policies for homeowners, renters, landlords, condominiums and residential fire insurance.
Earthquake insurance covers damage caused when the earth shakes or cracks. Fires and damage caused by ruptured water or gas lines are still covered under most homeowners' regular policies. Damage to vehicles from an earthquake is covered under the comprehensive part of car insurance.
Pat Dillman, personal lines manager at the Warren Group, an insurance agency in Chesterfield, said several insurers are refusing to write policies for brick homes, homes with a concrete block or stone foundation, or those built before a certain date, often 1950 or 1960.
Barb Dumoulin, a broker with DeWitt Metro Insurance, said some policyholders who have paid for earthquake insurance for years without making a claim suddenly are finding that their policies aren't being renewed. DeWitt, based at 2256 South Grand Boulevard, is in an area dominated by brick homes, which insurers are reluctant to insure against earthquake damage.
Allstate customers will get letters notifying them three months ahead of their renewal date that the company won't write the coverage, Pukala said. Allstate agents can still sell earthquake coverage, but the policies will be from another insurer.
Robert Hartwig, senior vice president and chief economist for the Insurance Information Institute, said Allstate is caught in a squeeze between rapidly rising costs for reinsurance - policies that transfer the risk to other companies - and pressure from regulators and ratings agencies to keep consumer rates down.
"The company feels it can't earn an adequate rate of return for its exposure in the business," Hartwig said.
Hartwig said national insurers such as Allstate are concerned not just about earthquakes, but tornadoes, hurricanes, wildfires and other natural disasters. A company that operates across the nation faces some potential liability for almost any disaster.
Allstate also is among the companies pushing for a national catastrophe reinsurance plan that would require states facing natural disasters to create a state catastrophe fund. Policyholders would pay into the fund, which would be used to spread risk among a wider pool of insurers.
Safeco Insurance Co. stopped writing earthquake insurance in 1995 on brick and other masonry homes in Missouri. Other types of homes may be covered, depending on age and condition, said Paul Hollie, a spokesman. Usually, the company will not write policies for homes built before 1960. The same restrictions apply in Illinois.
State Farm, the leading provider of earthquake insurance in Illinois and Missouri, has no plans to pull out of either state, said Tia Lindell, a spokeswoman.
Experts differ on the risk of a major earthquake in the bistate area, although some of the largest earthquakes in the country occurred along the New Madrid fault in 1811-12. The region has frequent minor earthquakes, including one that startled residents of De Soto last month and another in January that was centered in Equality, Ill., about 120 miles southeast of St. Louis.
Allstate shakes up coverage
June 3, 2006
If the Big One hits California after September 2007 -- Allstate won't cover it. The insurer is leaving the earthquake business.
Northbrook-based Allstate, the nation's second-largest insurer of homes and cars, announced on Friday that starting Sept. 15, it will no longer renew optional earthquake coverage. The process will continue as policies come up for renewal through mid-September 2007.
Allstate already stopped selling new earthquake coverage in March. It has also cut back on catastrophe exposure in coastal New York and Florida.
"We have 17 million customers nationwide. We want to be there for millions of customers when they need us most," said Julie Capozzi, an Allstate spokeswoman. "Limiting our exposure to mega catastrophes like hurricanes and earthquakes makes sense."
Capozzi cited experts who believe there's a 62 percent chance of a major earthquake hitting San Francisco in the next 30 years. An earthquake of the level of the 1906 disaster would result in $129 billion in insured losses.
The Allstate decision will affect 407,000 customers with optional earthquake coverage, including 29,565 customers in Illinois, mostly in southern counties near the New Madrid fault. Allstate is seeking an alternative carrier for customers who want to continue coverage.
Property and casualty insurers are reassessing their risks after the two largest catastrophe years ever for the industry, said Michael Dion, senior equity analyst with Sandler O'Neill & Partners. "Why are they doing this? The rating agencies and the reinsurance companies are basically asking them to."
Allstate suffered a net loss of $1.55 billion in the third quarter of last year because of Hurricanes Katrina and Rita -- its biggest quarterly loss as a publicly traded company.
This year is predicted to be another bad one for hurricanes, and California is "long overdue" for a significant quake, Dion said.
Mega catastrophes like earthquakes and hurricanes are tough to insure, because it's "almost impossible" to spread out the risk, said J. Paul Newsome, equity analyst at A.G. Edwards & Sons.
But Birny Birnbaum, executive director of the Center for Economic Justice in Austin, Texas, said insurers are trying to get rid of anything that's not completely predictable, while leaving the big problems to the government.
"We're privatizing the profit and socializing the risk," Birnbaum said. "State legislators that have allowed the companies to do this kind of cherry picking have put taxpayers in a difficult situation."
Allstate has purchased $600 million in reinsurance to cover earthquakes and fires following earthquakes nationwide, to cover any damage that might occur before the coverage ends, Capozzi said.
Bloomington-based State Farm, the nation's largest insurance company, still covers earthquakes, spokesman Dick Luedke said.
NMadrid "big one" = $60 Billion in damage
NEW YORK, June 7 2006 (Reuters) - A magnitude 7.7 earthquake in the midwestern United States could cause $60 billion worth of damage in Missouri, Illinois, Tennessee, Kentucky and Arkansas, Risk Management Solutions said on Wednesday.
The estimate represents RMS's latest effort to model the possible losses from a major earthquake in the central U.S. RMS estimates probable losses from disasters such as hurricanes for insurers and other businesses.
Earthquake fears have been troubling insurers as well. Earlier this week Allstate Corp., the nation's second largest personal lines insurer, said it would no longer include earthquake coverage in its homeowner policies except where required by law.
Newark, California-based RMS estimated the states east of the Rockies comprise 20 percent of the average annual loss from earthquakes in the United States and a majority of this loss comes from the five states surrounding the New Madrid seismic zone: Missouri, Illinois, Tennessee, Kentucky and Arkansas.
RMS based its 7.7 magnitude quake on one near New Madrid, Missouri in December 1811 that caused the Mississippi River to run backward. Such a tremor would result in over $60 billion in insured losses today, the company said.
"Earthquakes east of the Rockies are less common than in the tectonically active West, but can be more severe due to ground motion and less seismically-resistant buildings," said Don Windeler, earthquake practice leader at RMS.
Nat'l Insurance industry needs Fed backstop for catastrophe.
Ohioans´ insurance premiums will help pay for Gulf Coast hurricane losses
Sunday, June 11, 2006
Hurricane Ivan brought devastation to the Gulf Coast when it slammed ashore Sept. 16, 2004. Pensacola, in the western tip of the Florida panhandle, took the full brunt of the storm. Insurance customers far from the Gulf Coast can expect rates to rise.
The tab for Charley, Frances, Ivan and Jeanne in 2004: $26 billion. The bill for Katrina in 2005: $40 billion. Wilma and Rita? $15 billion. The insurance industry picked up most of the bills, but now American consumers are paying for them with higher premiums and limited access to insurance coverage. Back-to-back years of recordbreaking storms have changed the way insurers do business nationwide. They´re "reassessing their risk everywhere, even in Ohio," said Daniel J. Kelso, president of the Ohio Insurance Institute. "They are much more careful now about where and what they choose to insure."
It has left Ohioans wondering whether they must pay for disasters along the Gulf Coast. The short answer is yes.
In the long run, catastrophes such as Hurricane Katrina affect insurance policies and prices as far afield as the Midwest.
"Ohio homeowners´ insurance rates will probably go up because reinsurance has become more expensive" in the wake of multiple storms, said Rick Holbein of State Auto Insurance Co.
Reinsurance is a policy that insurance companies purchase to help cover claims when disaster strikes.
Reinsurers paid the bulk of catastrophe claims the past two years, paying out $1.30 for every $1 they collected in premiums. They´re raising rates to recoup massive losses, said Robert Hartwig, senior vice president and chief economist of the Insurance Information Institute.
The price of reinsurance has risen 100 percent to 300 percent in coastal areas, Hartwig said. Willis Group, a London-based reinsurer, estimates reinsurance rates for the rest of the U.S. will rise 10 percent to 40 percent.
They "fluctuate because of extreme events elsewhere, and some of the costs do show up in rates here," said Ann Womer Benjamin, director of the Ohio Department of Insurance. "It´s one piece of the rate pie."
"Coastal areas will pay a higher percentage of reinsurance costs, but everyone is going to see a bump," Holbein said. Ohioans can expect the added expense to show up on their bills in 2007. Those with vacation properties along the coast are already feeling the pinch.
Hartwig estimates that homeowners´ insurance rates in Midwestern states will rise by 5 percent. Last year, rates rose 0.3 percent statewide. In 2006, the increase is expected to be just as minimal, said Womer Benjamin.
Allstate move hits 25,000 Hoosiers
Kentucky won't lose earthquake policies
By Wayne Tompkins
Allstate Insurance Co.'s decision to drop earthquake coverage for most of its 407,000 residential policyholders will affect nearly 25,000 Indiana customers when their policies expire, Allstate said yesterday.
Kentucky policyholders are not affected since state law mandates that insurers offer earthquake coverage.
Jim Atterholt, commissioner of the Indiana Department of Insurance, said Allstate's move does not reflect an industry trend and that the company is working to find alternate insurers for its customers.
The two states sit near the New Madrid fault, which roughly follows the Mississippi River bordering Kentucky, Missouri, Illinois, Tennessee, Arkansas and Mississippi. Three powerful earthquakes shook the region near New Madrid, Mo., in 1811-12.
A similar event today could cause severe damage in Western Kentucky and $160 million in property damage in Louisville, according to a computer simulation by the city.
Other Indiana carriers, including State Farm and Farm Bureau Insurance, have no plans to alter their earthquake coverage, Atterholt said.
"We are very fortunate to have a very competitive market. There will be plenty of opportunities for policyholders to make a different choice."
Allstate spokesman Mike Siemienas said yesterday that the company will continue to offer earthquake insurance to its Kentucky policyholders.
"In Indiana, we are no longer offering new coverage" and existing earthquake coverage will expire beginning with Sept. 15 renewals, he said. Those customers will still have a homeowner's policy, but the earthquake coverage will be removed, he said.
The action is part of Allstate's strategy to reduce its exposure to rare, catastrophic events. For example, paying claims after Hurricane Katrina left Allstate with a $1.55 billion loss in last year's third quarter, its biggest quarterly deficit as a publicly traded company.
Allstate collects about $60 million a year nationwide in earthquake-coverage premiums. It has about 45,000 Kentucky customers with earthquake coverage, Siemienas said.
"We have had meetings with Allstate and have told them that they have to continue writing in Kentucky," said Ronda Sloan, spokeswoman for the state Department of Insurance.
Siemienas said Kentucky is the only state where Allstate is writing new earthquake policies. It will renew them in seven other states: Connecticut, Florida, Georgia, New Hampshire, New York, Pennsylvania and Rhode Island.
About 352,000 earthquake policies will be dropped, or nearly 90 percent of Allstate's portfolio, Siemienas said.
"A company that operates nationally like Allstate is subject to a great deal of catastrophe risk," said Robert Hartwig, chief economist for the Insurance Information Institute. It "is looking to lower its exposure to major catastrophes."
Such companies face high reinsurance costs while regulations on rates they can charge customers do not keep pace with rising costs, he said.
"It is a for-profit business, and they're subjecting investor capital to risk," Hartwig said. "If that capital does not have an opportunity to earn a rate of return commensurate with that risk, investors would prefer that they don't put it at risk."
Reporter Wayne Tompkins can be reached at (502) 582-4232.
Availability of quake insurance in Ark
Earthquake insurance coverage crumbling
By TOM RAITHEL
David Stumpf of Evansville had been in the insurance business for more than three decades.
Still, he was surprised by the letter he received recently from his insurance company, Allstate Insurance, one of the largest homeowners' insurers in Indiana.
"I'm upset. I was in the insurance business for 33 years, and you just don't do things like that," Stumpf said. "I'm 86 years old. I'm too old to get in and fight it," he said.
Karen Spica, a spokeswoman for Allstate, said Friday that the company continued to negotiate an agreement by which it would offer earthquake coverage through a third party. As of Friday, however, the agreement had not been reached.
The disruption in Stumpf's earthquake insurance illustrates the kind of problem homeowners can have today getting earthquake coverage.
Harry Lukens, vice president of Jesse F. Stock Insurance in Evansville, said that he considers the problem a serious one "because it's not a question of 'if' we will have an earthquake. It's going to happen."
Evansville and many surrounding communities lie along the earthquake-prone area known as the New Madrid fault. In fact, Lukens insists his customers buy earthquake coverage with their homeowners' policies or sign a statement saying they don't want it.
Lukens said he thinks the problem is that many insurers lump earthquake coverage into the same category as other kinds of coverage, such as insuring against hurricanes and tornadoes.
"They just don't want to take on that kind of exposure with the rates they've been charging," Lukens said.
As a result, some companies are charging more for earthquake coverage on their homeowners' policies, while some are not covering against earthquakes at all.
Spica of Allstate said that the company "was just concerned about these high severity, low frequency events," like earthquakes and hurricanes. Because these disasters occur so infrequently and the costs are so high, it is hard to price these policies, she said.
As a result, Allstate, in March, stopped selling earthquake coverage to new customers. It still, however, renewed earthquake coverage for those who had it.
However, that policy has changed in recent weeks. The company has been notifying customers 90 days in advance of renewal that, while it would renew their homeowners' insurance, they would no longer renew their earthquake coverage.
Spica said that the company is negotiating with a third party so that it can offer that coverage to customers again.
If Allstate continues to offer earthquake coverage through a third party, Stumpf would be satisfied.
"I don't care who provides it," he said.
"I'll just keep my fingers crossed on it," he said.
What happens when Gulf Coast states and insurers collide? The question for state governments, which regulate the insurance industry, is: What should they do about this?
"There's an old Frankenstein movie where the villagers march on the castle with pitchforks," says Steven Geller, the Democratic leader in Florida's state Senate. "If we don't do something on insurance, I think they're gonna march."
An earthquake in the middle of the country, along the precarious New Madrid fault, could have enormous fiscal and energy consequences. "Virtually every natural gas pipeline in the nation is built over that fault," Geller says. "You'll see the explosion reflected off the moon."
Many Missourians lack earthquake insurance
DAVID A. LIEB - Associated Press
Statewide, fewer than 41 percent of home, farm and mobile home insurance policies have earthquake coverage, according to Department of Insurance records. In the city of St. Louis and the 47 counties most prone to earthquake damage, 62 percent have earthquake insurance.
But that percentage appears that high only because 72 percent carry earthquake insurance in heavily populated St. Louis County. Earthquake coverage hovers around 50 percent in New Madrid, Mississippi and Pemiscot counties, where damage is expected to be the heaviest.
Department of Insurance officials said they are trying to draw attention to the need for earthquake insurance.
Catastrophe Insurance Program Needed?
New Madrid could dwarf KatrinaBy Patricia-Anne Tom
November 16, 2005
Insurance Commissioners from California, Florida, Illinois and New York began laying the groundwork for what they hope will turn into a national catastrophe insurance program that would cover all Americans.
Hosting a two-day summit in San Francisco, the commissioners said the objectives were to come up with a plan to recommend to Congress that would: protect consumers by ensuring the affordability and availability of insurance against the financial consequence of catastrophic events.
Although the Summit was being planned before Hurricane Katrina hit the Gulf, "You only need to look at the Gulf states to see the current [catastrophe insurance] system doesn't work," said California Commissioner John Garamendi.
If a major tremblor struck San Francisco, for example, with only 14 percent of homeowners carrying earthquake insurance, most people would be without financial resources to recover, Garamendi added. "A California earthquake would wipe out individuals, homes, families and the wealth of the community because they wouldn't be able to rebuild. That would be economic disaster."
To avoid such a situation in California or elsewhere, the commissioners invited speakers from across the industry to create a dialogue about how to form a layered insurance program that involves individuals, insurers, state governments and the federal government.
Among the ideas discussed were to eliminate the national flood insurance program and instead wrap flood coverage into a multiperil plan for hurricanes, earthquakes, floods, other national disasters and terrorist attacks that private insurers would make available to homeowners in every state.
Risk modeling companies and economists speaking at the summit said the bill for Katrina, estimated at $125 billion, would be dwarfed by costs to recover from a major earthquake in the Midwest on the New Madrid Fault, a category 3 hurricane that strikes the Northeast, or a nuclear attack at a port in Long Beach.
"If Katrina taught us anything, it is better to plan and prepare than to respond after the fact," New York Superintendent Howard Mills said.
Insurance Companies Were Pounded in 2004 and 2005 When Hurricanes Tore Up the Atlantic and Gulf Coasts
The Columbus Dispatch, Ohio [portions cut]
Jun. 1, 2007 --Hurricane season starts today -- and insurance companies say they are ready.
Why are insurers so calm? Because they have significantly changed the way they do business -- even in areas far from the coast -- in an effort to shield themselves from catastrophic financial losses.
The 2004 and 2005 hurricane seasons were an "eye-opener" for insurance companies, said Gene Roberts, assistant vice president and director of claim operations for State Auto. "It had been many years since we had multiple events like that."
The most far-reaching change has been in underwriting -- an insurer's decision on who and what they will cover, and how much they pay for it. Nationwide has stopped selling new homeowners insurance policies in Florida, and it has canceled about 25,000 policies there, even though the company recently got the green light to raise rates by 54 percent.
Earthquake insurance not a priority locally
By Jay Strasner Sunday December 30, 2007
Although geologists say a substantial earthquake from the New Madrid seismic zone would heavily impact White County, few homeowners here have earthquake protection as part of their insurance policies. Local agents point to the lack of significant activity from the New Madrid fault during the past few decades and White County's distance from the zone as the main reasons for their clients' apathy about earthquake insurance.
Richard Cargile, an agent with Shelter Insurance in Searcy, said his company has previously paid claims stemming from New Madrid earthquake damage in parts of Missouri and Kentucky, but not in White County.
"To my knowledge, there haven't been any claims in this part of Arkansas," Cargile said. "Here in White County, we're not in what is considered an exposed area for earthquakes."
Companies writing earthquake coverage in Arkansas include Farm Bureau, State Farm, Houston Casualty Group, Allstate, St. Paul, Nationwide, Shelter Insurance, Farmers, State Auto and USAAA Group, according to insure.com.
Brad Haddix, an independent agent with Park Avenue Insurance in Searcy, said he's never had an earthquake-related claim in his 25 years in the business and estimates that less than 10 percent of his clients currently have earthquake insurance as part of their homeowner policies.