A new generation of Californians is coming of age with no memory of the Northridge Earthquake. January marks the 20th anniversary of that horrific disaster that struck just 20 miles from downtown Los Angeles. From a geologist’s perspective, the earthquake was awe-inspiring for its speed, size, and duration; to the many victims in the Los Angeles area, it was a catastrophe of epic proportions.
Without intending disrespect to the victims and the heroes of those tragic days, we thought it worthwhile to recall the Northridge Earthquake – from the insurer’s perspective, and as a reminder for our younger clients, many of whom now live near similar geologic structures, that disasters do happen. When our firm recommends earthquake coverage for your property, it is with your best interests in mind. Let’s hope and pray that another earthquake does not occur, but protect ourselves in case one does.
Seismologists record the largest ground motions even documented in an urban area. After the initial quake, thousands of aftershocks continued for hours including two major 6.0 Magnitude aftershocks and several in the 3.0 -5.0 Magnitude range. That the earthquake occurred in the middle of the night and on a federal holiday (MLK Day), without the daytime concentrations of people in businesses and schools or on busy roads, saved more lives. Still, many people died and were injured; others suffered long-term economic hardship:
• 57 fatalities
• An estimated 5,000 people injured
• More than 40,000 structures damaged
• Damage as far as 85 miles away
• Thousands of overpasses and freeways damaged and impassable
• Power and communications disrupted for miles
• Landslides destroyed hundreds of homes and roadways
• As much as $80 billion in direct and indirect costs
It could have been worse:
• A scoreboard collapsed at Anaheim Stadium falling on several hundred seats that were, fortunately, empty.
• A shopping mall in Northridge and California State University – Northridge also sustained heavy damage, notably the collapse of parking garages that were, again, mostly empty.
• Ditto for the collapsed bridges and overpasses when roads were almost empty.
• There was an outbreak of Valley Fever from the release of buried spores by landslides but its extent was contained
The Northridge Earthquake remains the costliest earthquake in U.S. history. Government sources estimate total property damage was about $40 billion, and researchers at Caltech concluded that confirmed indirect costs would double that amount. From insurance industry estimates, more than $12.5 billion was paid out to area policyholders for damages resulting from the earthquake – Northridge was the most expensive earthquake insurance loss ever. Yet, that amount should have been higher. Unfortunately, thousands of property owners choose to forego earthquake insurance coverage.
Could It Happen Again?
Let’s hope not. However, we did learn valuable lessons from Northridge, and if another earthquake should occur, we are confident that much of the damage seen in the Northridge event will be prevented and that the emergency response will be better prepared.
For example, the California Earthquake Authority (CEA) was established in 1996 as a privately-funded, publicly-managed insurance organization to provide a permanent solution to the state’s financial risk from earthquakes. Under the enabling legislations, insurers can write residential policies on CEA’s behalf at predetermined rates, or at their choice, sell coverage that meets the state’s minimum earthquake requirements through a private insurer.
Also, the state funded a major initiative to reinforce freeway bridges and tunnels against seismic activity, and legislation mandating that water heaters be better secured in buildings to prevent ruptured gas lines was passed. Local governments passed more stringent building codes and eliminated many of the types of buildings and forms that could be constructed within their boundaries. Enforcement was also heightened with more inspectors and tighter plan reviews.
Unfortunately, to date the CEA has only been able to fund coverage for about 65% of the total risk. Despite Northridge’s financial devastation being so recent in our past, only 12% of Californians carry earthquake coverage on their properties today. There may be several reasons. More would certainly buy if mortgage lenders required earthquake coverage on all properties, as they do flood insurance. Also, earthquake insurance typically carries a high deductible equal to 15% of the property’s value. Intended to lower premiums and limit minor claims that are difficult ascertain, high deductibles also deter some property owners from buying.
Consider Earthquake Coverage for Your Home, Commercial Property and Business
A contingency study by the insurance industry found that an earthquake equivalent to Northridge in the Los Angeles area could cause more than $150 billion in total economic loss, of which up to $24 billion would be covered by insurers. While the insurance industry has recovered from its Northridge losses and is better prepared to respond to another such disaster, its current commitment to the region, represented by the premiums paid by its policy holders, will not be sufficient to prevent a domino-effect of economic failures for many people.
Science has a better understanding of earthquakes today. The instrumentation to measure seismic activity and ground motion has improved such that we know have much more data to support the engineering of earthquake resistant buildings and roadways. Insurers also benefit from these technologies when we can better predict damages, adapt our underwriting guidelines, and work with our policyholders to develop new construction techniques that mitigate earthquake risk and lead to better insurance products and lower premiums. If you have not reviewed your property coverage in the last few years, please contact your Nahai Insurance agent for an expert assessment and professional recommendation.