Insurance of Older Buildings Made Easier with Earthquake Retrofits
Last fall marked a brief period of heightened anxiety for us here in Southern California, when scientists announced that a swarm of seismic activity at the Salton Sea dramatically increased the risk of a major quake along the San Andreas fault.
Newspaper headlines and radio announcers warned, (sometimes in jest), that “The Big One” would happen within a week.
It didn’t strike, but eventually it will. Southern California is way overdue for its next major earthquake.
Insurance Carriers Are Taking Note
Insurance carriers have been keeping a pulse on California’s earthquake liabilities, just as they monitor trends in fire, water damage, theft and a host of other life safety issues that could leave you having to file a claim (or wishing you could) for loss, damage, or even injury or death.
The warnings of seismologists, coupled with ongoing problems related to fire, plumbing and other wear-and-tear issues are being heard by the insurance industry. That’s why an increasing number of carriers no longer insure older buildings built before 1978 for earthquake insurance, and 1960 for fire and liability, according to Matt Fuller, president of Fuller Insurance Company.
The way he explains it, there are approximately 15 competitive insurance carriers in California, but when it comes to older buildings, that number dips in half, particularly for buildings with five or more units under one roof.
“The insurance market is getting squeezed,” Fuller said. “Carriers are becoming more discriminating than ever these days. They’re looking for upgrades on older buildings, including retrofits. When they aren’t done, a growing number will either increase premiums, modify coverage or decide not to insure the building at all.”
Many carriers, because of the increased habitability lawsuits in apartment buildings nationwide, are modifying coverage to exclude coverage for court-awarded attorney’s fees. Because of this change, it is imperative that owners keep accurate records of all maintenance in the event of a lawsuit, Fuller said.
On the other hand, carriers are responding positively to retrofits and upgrades: reducing insurance rates for pre-1978 soft story structures that undergo an earthquake retrofit, according to the California Department of Insurance.
Fuller said one carrier is offering discounts of 5 percent for retrofits, and possibly more when the retrofit is part of more comprehensive upgrades.
Make Your Retrofit Part of an Overall Upgrade
Fuller recommends that apartment owners consider a series of upgrades to coincide with their retrofits, and that they keep detailed logs and receipts of renovations as they do them. These records will help with annual premiums and in any potential liability claims should they occur.
Electrical, plumbing, heating and rooftops all become vulnerable as they age, and each one can create serious problems if left to deteriorate.
“Insurance carriers have several discounts available to those who do retrofits and upgrades,” Fuller said. “This could significantly reduce annual premiums because the effective age of the property is reduced along with the potential of certain claims.”
Fuller recommends the following upgrades be done in conjunction with your earthquake retrofit:
- The following electrical panels by these manufacturers are being required to be replaced by many insurance companies due to fire and life safety issues: Federal Pacific Electric and Zinsco (Kearney). It is prudent to have your system looked at by an electrician to determine what type of panels your building has, its condition, and if it is up to code.
- Inspect and repair plumbing as needed. This helps to reduce the risk of water damage and mold.
- Replace the roof of your building if it needs it. This helps to protect against water damage, mold and other issues.
“Insurance carriers are looking for life safety issues,” Fuller said. “The more a building owner addresses these, the easier it is to insure the property under much better terms.”
Earthquake Insurance Pays for Reconstruction, Loss of Income
Fuller recommends earthquake insurance, particularly for apartment owners who have a lot of equity in their building.
“A lot of owners look at their buildings as their retirement plans,” Fuller said. “It’s their asset, not the banks.”
Quake insurance will not only pay for repairs or the cost of replacing the building, it will also pay for loss of income, which is a huge help to apartment owners.
“Earthquake insurance will pay for the loss of rents, minus the deductible on the policy, usually 10% or 15% based on the policy terms with the insurance company. No two policies are the same,” Fuller explained. To reach him for more information, call 800-640-4238 or visit http://www.fullerins.com.
Don’t Rely on the Government to Help
Assistance from the Federal Emergency Management Agency (FEMA) usually comes in the form of a low-interest loan, which would need to be paid off along with a building’s existing mortgage.
FEMA awards grants only to people who cannot qualify for those loans, and most of those awards are relatively modest – averaging approximately $5,000 to provide money for families to find temporary housing.
The California Department of Insurance (CDI) offered the following guidelines to anyone considering earthquake insurance.
- Is your building located where earthquakes are common?
- Do you own a high-risk structure?
- Can you afford NOT to have earthquake insurance?
The cost of earthquake insurance is based on a number of factors, including building style, materials and the kind of soil underneath it.
According to the agency, the cost is usually higher for:
- Older buildings
- Buildings with brick or masonry
- Buildings with tuck-under parking
- Buildings on sandy soil instead of clay or rock
- Buildings that are not up to code
Attend One of Our Workshops for More Information
Optimum Seismic has teamed up with AAGLA to put on a series of informational seminars throughout this year and into 2017. Many of these workshops have included representatives of the Los Angeles Housing and Community Investment Department, as well as representatives who can speak to liability and finance issues. For more information or for future dates, call AAGLA at 213-384-4131.
Optimum Seismic also offers free, personalized consultations to address the unique needs of each structure. Visit https://www.optimumseismic.com or call 626-470-6092 for more information. As the Preferred Supplier of Earthquake Retrofit Engineering and Construction for the Apartment Association of Greater Los Angeles, Optimum Seismic is pleased to offer $2,000 discounts to fellow members of AAGLA.