February 25, 2010

Missouri Department of Insurance: Earthquake insurance market feeling some tremors

Jefferson City, Mo. - February is Earthquake Awareness Month, and Missouri Insurance Director John M. Huff says earthquake insurance is available across the state, but with some significant shortcomings in coverage. A new survey shows that while homeowners in all parts of Missouri can find coverage, they may face extremely large deductibles or have to leave their current homeowners insurance company.

The department recently collected data on earthquake coverage from the 20 largest homeowners insurance companies in Missouri. The report showed several positives, including the availability of coverage and the relative affordability of premiums. In most parts of Missouri, the insurance will cost about $10 per month on a $200,000 home. In St. Louis and southeast Missouri - areas most likely to be affected - the insurance averages about $40 per month.

Huff, however, says he's concerned about several findings:

  • Deductibles are typically 10 to 15 percent. That means on the $200,000 home, the consumer would have to pay a deductible of $20,000 to $30,000 before the insurance benefits kick in.
  • Many insurers require multiple deductibles: one for cost of the structure and another for cost of the home's contents. That means the consumer pays as much as $45,000 in deductibles before receiving any benefits.
  • Most insurers will not offer new policies on solid masonry houses, and many older houses are built this way.
  • Some insurers in recent years have begun outsourcing to a "surplus lines" company for earthquake insurance. Surplus lines insurers are subject to fewer consumer protection laws and often have no relationship with the policyholder. This puts consumers filing claims in the position of dealing with an unfamiliar company at a time of dire need.

"The huge deductibles and other issues mean consumers, who have faithfully paid their premiums for years, could face extraordinary difficulty should a damaging earthquake hit their region," said Huff. "Missouri needs homeowners insurance to be available without undue restrictions, so that insurers can truly come through for consumers should such a life-changing event occur."

Huff says earthquake insurance policies have become more restrictive in recent years, and the department will continue to watch the market for developments.

The top 20 homeowners insurance companies represented more than 80 percent of the Missouri homeowners market in 2008. A list of companies offering earthquake insurance to new customers is available at the department's Web site. Consumers interested in buying coverage should shop around, and those who already have coverage should talk to their agents to ensure they understand what they're paying and what they're getting.

Consumers with insurance questions or complaints can contact the Missouri Department of Insurance online or at 1-800-726-7390.