Bill and Liz Barlak have carried earthquake insurance on their three-bedroom house in Burbank since the couple bought the property 30 years ago.
“It helps us sleep at night,” said Bill Barlak, 66, an engineer. “I wouldn’t buy a home without it.”
Which makes the Barlaks part of a minority in California.
The state’s population, housing stock, home prices and number of renters all have soared in the 23 years since the Los Angeles area’s last major earthquake, a magnitude 6.7 temblor centered in Northridge that left 57 dead and caused an estimated $44 billion in property damage.
Nonetheless, the percentage of homeowners and renters who have earthquake insurance has dropped sharply.
That might change after the recent deadly earthquakes in Mexico, which were a reminder that California is considered overdue for another major quake of its own.
While policy sales figures for September aren’t yet available, “callers were asking for detailed information about earthquake insurance coverage,” she said.
Only 10.8% of Californians with residential insurance had earthquake coverage at the end of last year, compared with nearly 33% when the Northridge quake struck in the early morning of Jan. 17, 1994, according to the California Department of Insurance.
The figure has stayed below 11% for the last five years.
Renters as a group are even less inclined to have an earthquake policy, with only 5.24% carrying such coverage last year compared with nearly 10% a decade ago, the department said.
“It’s stunning,” said CEA Chief Executive Glenn Pomeroy. “The fact that 90% [of homeowners] are uninsured is a terrible thing for California to be resilient and survive the next big quake,” said Pomeroy, whose privately funded, not-for-profit organization handles about 80% of earthquake policies in the state and now has the ability to pay up to $15 billion in claims.
Theories as to why more residents don’t get coverage range from faded memories of earlier quakes to confusion over coverage and pricing.
The number of Californians buying earthquake insurance has actually risen steadily over the years. The CEA had 952,000 policies in force as of August, compared with 754,672 at the end of 2006.
But the population and number of houses in California has soared even more, leaving those covered by quake insurance a low percentage of the total.
There are now about 9.1 million detached houses in California, a 25% increase from the 7.3 million in 1994 when the Northridge quake hit, according to data from the California Department of Finance.
Home prices also have skyrocketed. The median price of a single-family house in Los Angeles County hit a record $580,000 in August, according to the data firm CoreLogic, more than triple the median price of $189,400 in mid-1994.
The record-setting prices have forced many Californians, especially millennials who are in their early earnings years, to rent rather than buy. Yet 95% of the renters don’t have insurance to cover the cost of replacing their possessions if a major temblor struck.
The renters’ landlords are responsible for covering their buildings in the event of a quake, but generally it’s up to renters to get coverage for their belongings.
“People are going to have difficulty recovering, particularly lower-income people and people with fairly high mortgages,” said Robert Hunter, insurance director at the advocacy group Consumer Federation of America.
“Earthquakes don’t happen very often so people have a hard time focusing on it when there are so many other things in their lives,” Pomeroy said. “A lot of people weren’t living here [in 1994] or weren’t living at all then, so they don’t internalize it.”
Dwellers often mistakenly believe earthquake coverage is part of their normal homeowners or rental insurance policies, or have the misconception that if the quake is big enough, the federal government will give them help.
But grants from the Federal Emergency Management Agency under its individuals and households program are capped at $33,300.
There’s another reason cited for Californians’ resistance to buying earthquake insurance: lingering memories of high premiums immediately after the Northridge quake.
Insurers in California were required to offer earthquake coverage along with general homeowners insurance when the Northridge quake occurred. After Northridge, premiums for quake coverage soared, coverage was restricted and insurers balked at being forced to write new policies.
That led the state Legislature to create the CEA, whose participating insurers now include State Farm, Allstate, Mercury, Progressive, Farmers and Liberty Mutual.
Initially, the CEA’s policies were expensive and somewhat skimpy, including only $5,000 for replacing personal property (in addition to the replacement cost of the structure) and only one deductible of 15%.
Today, however, the CEA personal-property coverage is up to $200,000, and the “loss of use” coverage — for living expenses while a home is being repaired or rebuilt — is up to $100,000. Condo policies can cover damage assessments levied by homeowner associations.
Premiums vary depending on where the house is located, its age, style of construction and soil conditions, to name a few factors. But overall, the CEA says premiums on its policies have dropped by more than 50% since the authority was created. (The CEA website has a tool that shows coverage options and estimated cost.)
Also, the deductibles on CEA policies now range from 5% to 25%. And the CEA notes that another fear about earthquake insurance— that homeowners and renters must come up with the money to pay deductibles — is unfounded because the deductible is subtracted from the claim payment.
“There is no out-of-pocket requirement,” Pomeroy said. “If you have a home destroyed, we’ll pay the replacement cost, less the deductible, and they can choose how to rebuild.”
Hunter said every California resident “should go through a careful process and analyze what would happen if something like what happened in Mexico happened in your area.”
Mexico has experienced a series of earthquakes recently, capped by a magnitude 7.1 quake that struck near Mexico City on Sept. 19, leaving more than 325 dead and thousands of properties destroyed or damaged.
“You have to think the worst-case scenario,” Hunter said. “The longer it doesn’t happen [in California], the more people think it won’t happen.”
But Barlak — who pays an additional $648 a year for earthquake coverage on his homeowners policy, with a 15% deductible — says he doesn’t need to be persuaded to stay insured.
“I would question whether you can afford to not have it,” he said.