-Appeared on Southern California Rental Housing Association.
Nobody likes to think about insurance, but it is important to guard yourself and your assets against the “what if’s.”
What if I get in a car accident? What if a member of my family becomes ill? Will my soft-story apartment building be able to withstand a major earthquake?
Nobody should be caught without insurance. It’s an essential tool to guard against excessive risk associated with our automobiles, our property, our health, even our lives.
But it’s important to note that while insurance may help to cushion the blow of an accident or worse, it does nothing to prevent these adversities from occurring.
When it comes to guarding against earthquakes, there are four options available to property owners, each with their own pros and cons:
• The “do-nothing” approach
• Earthquake insurance but no retrofit
• Retrofit but no earthquake insurance
• Earthquake Retrofit and insurance
No. 1: Do Nothing
This is generally not a good approach to follow, yet surprisingly, it is the tactic used by most building owners.
Seismologists warn that a major quake – one with the force to rip along the San Andreas fault and displace it by an average of 9 feet – is long overdue. This looming 7.8-magnitude earthquake in Southern California would result in more deaths and nearly twice the damage as the 1994 Northridge earthquake to area infrastructure, including buildings, critical transportation, power and water systems.
It could happen in San Diego: The Rose Canyon fault could cause a 6.9-magnitude fault, seismologists say.
No. 2: Insurance Only
Depending on the level of earthquake coverage you buy, it can cover all or part of the damage to your building, damage to the contents of the building, and in certain instances your policy can also include coverage for income lost if your building becomes uninhabitable. This latter option, covering lost rent, can be extremely expensive, but many property owners depend on that income for their livelihood or retirement.
Bear in mind that many insurance carriers today will not provide earthquake insurance for buildings proven to be vulnerable to damage from a quake. If they do, it is very expensive. Those that do have earthquake insurance frequently face deductibles as high as 15 percent of the value of a building — far more expensive than a seismic retrofit would be.
No. 3: Retrofit Only
Investing in a retrofit without earthquake insurance represents a tangible step toward preventing damage or injury in a major earthquake.
The University of San Diego Jacobs School of Engineering conducts studies on the effects of retrofits using one of the world’s largest shake tables — a gigantic simulator big enough to support and shake a building. Their findings are that retrofits can not only help to prevent a building from falling, but they can also to keep them habitable after a quake.
In other studies, researchers at CalTech determined that for every dollar spent in retrofitting soft-story structures, property owners could expect to save up to seven dollars, and that study didn’t factor in loss to contents, alternate living expenses or deaths and injuries – all of which would have significantly increased the cost-to-benefit ratios. Their calculations found that seismic retrofits are cost-effective when expected annualized loss would be reduced by 50 percent or more at a cost that would equal no more than 10 percent of the replacement cost of a building.
No. 4: Retrofit and Insurance
This option does the most to protect a property owner.
It is by far the safest option. A retrofit helps to secure the building and minimize damage, loss and liability risks.
Insurance helps to keep building owners covered in the event of damage, and the coverage can include loss of content, loss of income, damage, liability and more.