The Missouri Department of Insurance has issued a new Earthquake Insurance Market Report that highlights some sobering facts about Missouri’s insurance market readiness to recover following a high magnitude quake in the New Madrid fault area, which runs through the Southeast Quadrant of the state, extending from the Bootheel northward to St. Louis and beyond.
The New Madrid area of Missouri experienced a series of powerful earthquakes during the winter of 1811-1812, with experts estimating the primary quakes ranging in magnitude from 7.0 to 7.5. Were an earthquake of similar magnitude to occur today along the New Madrid fault, losses would be staggering. The risk modeling firm AIR Worldwide has estimated that a New Madrid recurrence would produce insured losses of $120 billion dollars (2011 dollars). Such losses would only be rivaled by a repeat of the 1906 San Francisco earthquake, with estimated losses of $93 billion.
A joint assessment by the Mid-American Earthquake Center of the University of Illinois and the Federal Emergency Management Agency predicted that a major New Madrid event could entail total economic losses of $300 billion, surpassing the highest total economic loss of any natural disaster in US history.
Missouri is the third largest market for earthquake insurance among the states, exceeded only by California and Washington. However, over the last 20 years, the earthquake insurance market has significantly contracted, with many insurers leaving the market entirely, while others refuse to issue new policies in the New Madrid area. Even among those insurers still willing to sell coverage, stricter underwriting standards make some types of dwellings ineligible for coverage. Those who can obtain coverage find they are required to “self-insure” to a much greater extent than in the past. Deductibles up to 20 percent of the dwelling value are not uncommon, and “stacked” deductibles are often applied separately to the dwelling and contents.
While coverage has contracted, the price of coverage has increased significantly, in some instances by more than 500 percent in some counties over the last 15 years. Coverage has become significantly less available and less affordable in the areas that require it most.
“We are very concerned about the state of our earthquake insurance market in Missouri,” said Chlora Lindley-Myers, director of the Department of Insurance, Financial Institutions and Professional Registration.“We take our duty to educate our consumers and build awareness very seriously. We want everyone to prepare not just for an earthquake event, but for a successful recovery afterward.”
On average, earthquake premiums in the six counties that comprise the New Madrid area have increased by nearly 700 percent between 2000 and 2018, and in one county by nearly 1,000 percent.
While rates have increased throughout the state, the rates in the highest risk areas of the data have increased much more rapidly, widening the costs between high and low risk areas. In 2000, average annual premium in the New Madrid area was only 64 percent higher than the lowest risk counties of Missouri. By 2018, premiums were nearly 334 percent higher.
In 2000, more than 60 percent of residences in the New Madrid area had earthquake insurance. By 2018, the rate of coverage had declined to just under 14 percent, a decrease of 46 percentage points.
In other high risk areas outside of the New Madrid zone, take-up rates also substantially decreased, from 67.6 percent to 46.3 percent over the same period.
Nearly half a million residences that are not covered for earthquake losses are located in a Missouri county rated 7 or higher on the Mercalli scale (a measurement of vulnerability to a New Madrid earthquake). The total property value of these unprotected residences, excluding the value of contents that may also be at risk, is estimated to approach $100 billion.
Based on the Missouri market share for homeowners insurance,
• Carriers with 12.5 percent of the home insurance market either write no earthquake coverage anywhere in the state, or only renew existing earthquake policies but won’t issue new coverage
• Significantly more, or 31 percent, write somewhere in Missouri, but will not provide new coverage in the New Madrid area (though some of these still offer renewal coverage)
• 41 percent issue some new coverage in the New Madrid area, but will not insure some types of construction, such as masonry homes.
• Only 26.6 percent of the market issues coverage in New Madrid on the same basis as elsewhere in the state, but even these companies may have significant additional underwriting restrictions based on the age and location of the home and other construction characteristics
• Those able to obtain earthquake insurance must still “self-insure” to a significant degree. In the six-county New Madrid area, only one insurer (among those surveyed) offers a deductible of less than 10 percent of the insured value of the residence. Over 27 percent of the market requires a deductible of 15 percent or higher. Often, deductibles are “stacked,” such that they apply separately to the building and contents.
• Of those who have earthquake coverage and are located in areas with a risk of 7 or higher on the Mercalli 10-point scale, the amount of risk they still retain due to deductibles exceeds $14.5 billion. When this amount is added to homes that have no earthquake coverage, the value of self-insured residential property in moderate to high-risk zones exceeds $110 billion.
The full report is available on the department’s website.