How to Protect Your Business from Earthquakes

Tips for reducing risks and mitigating losses should the earth begin to shake.

Just in time for the summer blockbuster movie season, "San Andreas," an action-packed disaster thriller telling the fictional story of the aftermath of a magnitude-9 earthquake along the infamous San Andreas Fault in California, hits theaters. While the movie will undoubtedly be entertaining, it's also a good reminder to be prepared for Mother Nature's wrath.

Earthquakes can happen at any time of the year and occur without warning. While California has been the state most prone to serious earthquakes in recent years, there are many other fault zones in other areas of the United States. All 50 states and five U.S. territories are at some risk for earthquakes. As shown on the map below, 45 states and territories in the U.S. are considered to face "medium" to "very high" risk of earthquakes.

According to the Centers for Disease Control and Prevention (CDC), geologists and seismologists have predicted a 97 percent chance of a major earthquake in the New Madrid seismic zone of the central United States (including Arkansas, Missouri, Tennessee, and Kentucky) between now and 2035. A March 2015 forecast from the U.S. Geological Survey (USGS) has upped the likelihood that California will be hit by a magnitude-8 earthquake over the next 30 years to 7 percent, from a 2008 report's forecast of 4.7 percent. 

Take action now, before an earthquake hits, to secure your property and help prevent injuries at home and at your place of business.

 

Start with a Hazard Hunt

First, look around for things that might fall. In particular, consider:

  • Cabinet doors should be secured with latches to prevent contents from crashing to the floor.
  • Items on shelves and tables such as framed photos, books, and lamps should be secured with hooks, adhesives, or earthquake putty to keep them from becoming flying hazards. Move breakable or heavy items to lower shelves.
  • Mirrors, picture frames, and other hanging items should be secured to the wall with closed hooks or earthquake putty. Do not hang heavy objects over beds, sofas, desks, or any place you may be seated.
  • Secure electronics such as computers, televisions, and microwave ovens with flexible nylon straps.
  • Tall furniture like bookcases, filing cabinets, and china cabinets should be anchored to wall studs (not drywall or masonry). Use flexible straps that allow them to sway without falling to the floor.
  • Major appliances like your water heater and refrigerator should be secured with the appropriate straps screwed into the wall studs or masonry to help keep them from falling over and rupturing gas or electric connections. Gas appliances should have flexible connectors to absorb the shaking while reducing the risk of fire.
  • Brace overhead light fixtures.

All the adhesives, straps, hooks, latches, and other safety devices mentioned above are available at most hardware and home improvement stores as well as online retailers.

 

Next, work to strengthen your organization's buildings. Examples of structures that may be more vulnerable in an earthquake are those that are not anchored to their foundations, or structures that have weak crawl space walls, unbraced pier-and-post foundations, or unreinforced masonry walls or foundations.

Make sure your business's buildings are resistant to earthquake damage. Consider installing an earthquake-resistant bracing system in any manufactured buildings you use. And consider installing foundation bolting, crippling wall bracing, and reinforcing chimneys in your other buildings.

 

Earthquake Insurance

Earthquakes in the U.S. are not covered under standard homeowners, renters, or business insurance policies, according to the Insurance Information Institute. Coverage is usually available for earthquake damage in the form of an endorsement to a home or business insurance policy. Earthquake insurance is available from most insurance companies in most states.

Earthquake insurance provides protection from the shaking and cracking that can destroy buildings and personal possessions. Coverage for other kinds of damage that may result from earthquakes, such as fire and water damage due to burst gas and water pipes, is provided by standard home and business insurance policies in most states. Cars and other vehicles are covered for earthquake damage under the comprehensive part of the auto insurance policy.

Unlike flood insurance, earthquake coverage is available from private insurance companies rather than from the government. California law requires companies that provide homeowners insurance to offer earthquake coverage to their homeowners-insurance policyholders. Homeowners can decide to purchase it, purchase a policy from another insurer, or decline it altogether. In California, homeowners can also get coverage from the California Earthquake Authority (CEA), a privately funded, publicly managed organization.

Unfortunately, the number of people buying earthquake insurance has declined, even as the risk is increasing. According to a 2014 Insurance Information Institute survey, 7 percent of American homeowners have earthquake insurance, down from 10 percent in 2013 and 13 percent in 2012. In the West, this measure fell from 22 percent in May 2013 to 10 percent in May 2014. Only 7 percent of homeowners in the Midwest, and 6 percent in the South, said they have earthquake insurance. And just 2 percent of homeowners in the Northeast said they have earthquake insurance. Eleven percent of homeowners earning $100,000 or more said they had earthquake insurance, down from 18 percent a year ago. Worse, only 2 percent of homeowners who earned less than $35,000 said they had earthquake insurance in 2014, down from 6 percent in 2013.

Deductibles and Costs

Earthquake insurance carries a deductible, generally in the form of a percentage rather than a dollar amount. Deductibles can range anywhere from 2 percent to 20 percent of the replacement value of the structure. This means that if rebuilding a home cost $100,000 and the homeowner had a 2 percent deductible, the homeowner would be responsible for the first $2,000 of repairs.

Insurers in states like Washington, Nevada, and Utah, with higher-than-average risk of earthquakes, often set minimum deductibles at around 10 percent. In most cases, consumers can get higher deductibles to save money on earthquake premiums.

The standard California CEA policy includes a deductible that is 15 percent of the home's replacement cost. The basic policy covers only the house; structures such as garages, pools, etc. are not covered. Personal possessions are covered up to $5,000, and "loss of use" expenses—the additional cost of living elsewhere while home repairs are made—are covered up to $1,500.

Recognizing that some people want more comprehensive coverage, the CEA also offers a 10 percent deductible, insurance for other structures, personal items coverage up to $100,000, and $15,000 in "loss of use" coverage. Premiums vary widely among the 19 rating territories, based on the type of house, its age, the nature of the soil, and proximity to known fault lines. The CEA has reserves of about $9 billion.

Premiums also vary widely by location, insurer, and the type of structure that is covered. Generally, older buildings cost more to insure than new ones. Wood-frame structures generally benefit from lower rates than brick buildings because they tend to withstand quake stresses better.

Regions are graded on a scale of 1 to 5 for likelihood of quakes, and this may be reflected in insurance rates offered in those areas. The cost of earthquake insurance is calculated on a "per $1,000 basis." For instance, premiums for a frame house in the Pacific Northwest might cost between $1 and $3 per $1,000 worth of coverage, while they may cost less than 50 cents per $1,000 on the East Coast. Premiums for a brick home would cost approximately $3 to $15 per $1,000 in the Pacific Northwest, while they would cost between 60 and 90 cents in New York.

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Originally published on PropertyCasualty360. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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