Stitching Together a Disaster Safety Net : Congress should now give serious attention to making earthquake insurance mandatory

The time has come for Congress to take a hard look at making earthquake insurance mandatory for all homes, apartment houses and commercial buildings in California.

The goal would be a minimum level of coverage, with a reasonable deductible, for all property owners exposed to such destructive events as last Monday’s Northridge earthquake. The full scope of the damage produced by that magnitude 6.6 shaker and its aftershocks can’t yet be calculated. What is already clear is that only a fairly small percentage of property owners carried earthquake insurance. Most of those probably suffered damage below the point where their insurance would begin to cover loss.

Beyond the minimum level of insurance more extensive coverage ought to be available for those willing to pay higher premiums. The essential need is to make the insurance mandatory, just as mortgage lenders require homeowners to carry insurance against fire and similar non-seismic calamities. The point of insurance is to spread the risk. Limited-coverage mandatory earthquake insurance would do that.

We focus on earthquakes because they are of most immediate concern. But Congress should also consider mandating a general form of disaster insurance for the nation’s property owners, one that would also help offset losses from such other brutally destructive events as hurricanes and floods. Again, the broader the required coverage the wider the risk could be spread.

For better or worse, government--the federal government especially, but in some cases state governments as well--has come to be looked on by many as the most important provider of relief following a natural disaster. Governments of course have a major and even, initially, a primary humanitarian role in the wake of disasters. But government simply doesn’t have the resources to compensate for disaster-produced property losses. Disaster insurance, paid for as all other insurance is paid for, seems to be the best approach.

The idea isn’t new. Each fresh natural disaster revives interest in it, but as the memory of the catastrophe fades so does interest in insuring against future such events. Experience has shown that making earthquake and other disaster insurance available on a voluntary basis produces only limited participation. But disasters don’t discriminate between those who have insurance and those who don’t. That’s why Congress should now give serious attention to making such insurance mandatory.