Earthquake Retrofits and Insurance: Your Best Defense Against the “Big One”

Earthquake Retrofits and Insurance: Your Best Defense Against the “Big One”

News accounts of the Northridge earthquake of 1994 presented shocking images of the widespread destruction, the loss of life, and the injuries suffered from the 6.7 magnitude blind-reverse-thrust quake, which produced the largest ground motions ever recorded in an urban environment in the U.S.

Fifty-seven people were killed; more than 40,000 structures damaged. The quake ranked No. 4 behind Hurricane Katrina, the World Trade Center attacks and Hurricane Andrew in a list of the nation’s most expensive disasters, according to AIR Worldwide, a leading catastrophe modeling firm.

What Terry Bichlmeier, Executive Vice President of Bichlmeier Insurance Services, Inc., remembers most from the Northridge Earthquake was the way it devastated lives. “Some people had to walk away from their properties,” he said. “They just couldn’t sustain the loss.”

Those who did have earthquake coverage were filled with an odd sense of grief and relief. They suffered a loss, yet they were able to repair or replace their buildings and many times received an income to cover the lost rent during reconstruction. “The carriers paid billions in earthquake insurance from that quake, and our clients received a good portion of those claim proceeds,” Bichlmeier said.
The scope of those payouts—estimated at $15.3 billion—prompted some insurers to stop offering earthquake coverage, saying the money paid out in insurance claims was more than the total of all earthquake insurance premiums collected in the previous 80 years in California. That prompted the State Legislature to create the California Earth – quake Authority, a State-run insurance pool that, since 1996, has provided insurance options to homeowners and renters.

Commercial building owners are still dependent on individual carriers for their earthquake insurance, which Bichlmeier said is getting easier and more affordable every day—particularly for those whose buildings are retrofitted or constructed according to the latest seismic engineering standards.

Heightened Interest in Preparing for Quakes
Today, we know that the Big One is coming. It’s just a matter of when. To prepare, a growing number of cities are adopting ordinances requiring seismic retrofits of buildings prone to damage in an earth – quake. This includes soft-story “tuck-under parking” apartment buildings built before 1978.

Insurance companies are responding to our growing understanding of earthquakes and a building’s ability to withstand it with broader and more afford able options for property owners—particularly those who have taken steps to make their buildings safer with earthquake retrofits. “Earthquake insurance is much more affordable today than five to ten years ago,” Bichlmeier said. “Premiums are down up to 15 percent.” He cited several reasons for this, including:

  • A healthy economy and low interest rates, which make insurance an attractive venture for investors.
  • Retrofits and better building codes, which are making buildings safer, thereby reducing the risk to investors
  • Flexibility in how to build a policy, which gives owners more options to consider when choosing earthquake coverage.

In fact, Bichlmeier said interest in earthquake insurance is growing to the point that it may one day become a part of the mortgage process. “If this trend continues,” he said, “we may see lenders starting to require earthquake insurance.”

Retrofits Help Reduce Risks, Premiums
Earthquake retrofits can increase the amount of credits applied to a policy, resulting in discounts of up to 20 percent, Bichlmeier said. “Retrofitting is the most important thing we can do because it saves lives,” he said. “Insurance doesn’t save lives. It saves your asset.”

Beyond that, retrofits add to the value of a property as an important—and sometimes mandatory—structural improvement. Potential buyers know that the building is safer, and that adds real value to the property.

Bichlmeier acknowledges that most people are reluctant to pay for something they think they may never need, but that’s the nature of insurance—we buy it, hoping we will never have to file a claim. Earthquake insurance is more flexible now than ever before. Bichlmeier said he often works with clients to draft a policy that fits within an apartment owner’s budget and needs. Some options include:

  • Blanket insurance on multiple properties
  • Limiting coverage to less than the total value of the building
  • Identifying a higher deductible

“I will sometimes say, ‘What do you want to spend per month?’ and we’ll work back from there,” he said, adding that he works with ten different markets and is able to get multiple quotes for his clients. Also, by limiting coverage and blanketing insurance, Bichlmeier often finds it’s the most economical way to insure one’s assets.

“I will sometimes say, ‘What do you want to spend per month?’ and we’ll work back from there,” he said, adding that he works with ten different markets and is able to get multiple quotes for his clients. Also, by limiting coverage and blanketing insurance, Bichlmeier often finds it’s the most economical way to insure one’s assets.

About the Author:

Ali Sahabi
Ali Sahabi has been a licensed General Engineering Contractor (GEC) since 1993, and is a principal at Optimum Seismic, Inc. He has completed hundreds of seismic retrofitting and adaptive reuse projects for multifamily residential, commercial, and industrial buildings throughout California.

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