According to the U.S. Geological Survey, there are approximately 10,000 earthquakes in Southern California every year. Most are so small that people don’t feel them — but some are much larger. Think of the Ridgecrest earthquakes of July 4th and July 5th, which had a magnitude of 6.4 and 7.1 respectively and caused an estimated $1 billion in damages. Moreover, experts predict that there’s a 31 percent chance that Southern California will experience a magnitude 7.5 earthquake between now and 2050.
Your Standard Business Insurance Policy Doesn’t Cover Earthquakes
Do not underestimate how much damage an earthquake can do in just a few short seconds. The smart thing to do is to insure your business appropriately. However, your standard business insurance policy does not cover earthquake damage.
Insurance Business Magazine reports that the reason for this is that the 6.8 Northridge earthquake of 1994 resulted in approximately $25.6 billion in insured losses. California insurers subsequently had to pay out more in claims than they had collected in the form of earthquake insurance premiums in the preceding three decades. This brought many to the brink of insolvency. As a result, insurance companies in California substantially increased their rates. They also increased deductibles, with the aim of limiting their exposure to earthquakes.
How to Insure Your Business Against Earthquake Damages
The National Association of Insurance Commissioners reports that earthquake insurance is sold mainly through admitted surplus and direct lines insurers as an endorsement to your business owner’s policy. It can also be a stand-alone policy.
Note that earthquake coverage only covers structural building and property damage resulting from the shaking of a quake. A regular business insurance policy covers indirect damage. For example, water or fire damage due to burst water or gas pipes. If there’s any damage to your company vehicle or vehicles, that should be covered under your business auto policy.
According to The Balance Small Business, earthquake insurance is bought as a premium per $1,000 of valuation. On the West Coast, premiums can run between $3 to $15 per $1,000 due to the increased risk of earthquakes. Premiums are also determined by the age of the insured building, as well as whether the structure is made of brick or stone.
Deductibles for earthquake insurance are typically percentages, not dollar amounts. This both helps consumers reduce their premiums and protects insurance companies against catastrophic losses. In most cases, deductibles range from two to 20 percent of the replacement value of a structure.
Talk to Your Insurance Agent About Purchasing Earthquake Insurance
If you don’t yet have earthquake insurance for your business, it’s advisable to talk to your trusted insurance agent about purchasing an endorsement or stand-alone policy. Because after the next big quake, the last thing you want is to be stuck trying to cover the cost of damages by yourself. Contact Grand Mutual Insurance for more information.