With scientists predicting a near-certain major earthquake in the coming decades, brokers have an important role to play in helping clients understand the coverage gap before disaster strikes.
Only 13% of homeowners in California currently have earthquake insurance. In a state where the scientific community predicts a greater than 90% probability of a magnitude 7.0 or higher earthquake occurring within the next 30 years, this coverage gap remains one of the most significant unaddressed risks in personal insurance today.
The disconnect between the likelihood of seismic activity and the lack of consumer preparedness creates both a challenge and an opportunity for brokers serving clients in earthquake-prone Western states. It’s also a reminder of how important clear, proactive guidance can be before a loss ever happens.
The psychology behind low take-up rates
The last major earthquake to strike California was the Northridge earthquake of 1994 more than 30 years ago. In the decades since, a natural “out of sight, out of mind” effect has taken hold. This mindset, compounded by simple misunderstandings, such as homeowners assuming earthquake coverage is included in their property policies, leaves many households exposed.
This is why the broker’s role is so important. It’s less about selling a policy and more about helping clients protect their financial stability. After a disaster, clients don’t call a policy document; they call the advisor they trust. Few moments are more difficult than hearing, “I thought I was covered.” That moment is preventable, but only if the conversation happens before the earthquake, not after.
The true cost of being unprotected
For the 87% of California homeowners without earthquake coverage, the financial exposure is significant. A major seismic event could devastate their most valuable asset, and relying on FEMA or other types of government assistance is not a sound recovery strategy.
What makes this situation especially frustrating is that earthquake coverage remains relatively affordable. Arrowhead General’s average premium for residential earthquake insurance is approximately $1,750 per year, and rates have remained stable for the past decade, even as homeowners and auto insurance premiums have climbed annually.
The policies do carry significant deductibles, which is by design. Earthquake insurance is structured to address catastrophic loss rather than minor damage, and higher deductibles are part of what make the coverage more affordable.
The broker’s role as educator and advisor
The recommendation for brokers is straightforward: review every homeowner’s insurance policy in your book of business. Determine whether each client has earthquake coverage. For those who do, make sure they understand how the policy works. For those who don’t, start a conversation.
Key points to cover
- Local risk: Earthquake exposure is regional, but very real.
- Coverage gap: Standard homeowners policies exclude earthquake damage.
- Federal aid limitations: Post-disaster assistance may come in the form of loans or small grants that homeowners must repay and are not designed to fully rebuild a home.
- Cost and structure: Explain premiums, deductibles and what catastrophic coverage is designed to do.
With 26 years of experience providing residential earthquake insurance in California, Washington and Oregon, Arrowhead General has built extensive resources to support brokers as they have these conversations. We offer webinars, training sessions and educational materials designed to support agency principals and their teams as they talk with clients about earthquake coverage.
As the second-largest provider of residential earthquake insurance in California, Arrowhead General works with independent agents to offer an alternative to the California Earthquake Authority, providing options including lower deductibles and flexible limits for dwelling coverage, other structures and personal property.
Looking ahead, the pattern after major earthquakes is predictable: buy rates spike as homeowners rush to get coverage they wish they had in place beforehand. The Northridge earthquake demonstrated this clearly, with adoption rising to nearly 40% before the long, steady decline to current levels.
For brokers, the message is clear: don’t wait for the next major earthquake to raise the issue. The time to have these conversations is now, before an event that scientist say is highly likely to occur.
To learn more, visit arrowheadgrp.com/products/residential-earthquake.
This blog was originally published on Arrowhead Programs. It has been updated to better fit the needs of Arrowhead General’s brokers and their clients.
This material has been prepared for general informational purposes only, is intended to apply generally rather than to any specific company and presumes appropriate discretion will be exercised regarding any particular situation.
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