August 11, 2015

Missouri Earthquake Report shows insurance coverage at critical tipping point

State insurance regulators' findings indicate coverage crisis in southeast Missouri

Jefferson City, Mo. - The value of uninsured residential properties for earthquake damage has nearly eclipsed the value of insured properties in Missouri. According to the 2015 Earthquake Report released by the Missouri Department of Insurance, insured residential properties in 2014 totaled $101 billion while uninsured residential property damage from a magnitude 7-7.9 earthquake is estimated at $100 billion.

"Uninsured property losses of $100 billion would undoubtedly jeopardize our state's ability to recover after an earthquake. An uninsured loss of this magnitude would likely necessitate a significant infusion of public funds, the likes of which we have never seen," said department Director John M. Huff. "Our state is now at a critical juncture in terms of transferring this risk to the private sector insurance industry."

Huff said the state has seen firsthand how insurance can fuel economic and physical recovery following a natural disaster.

"Following the Joplin tornado, we saw $1 billion in claims paid within the first 100 days," Huff said. "These funds enabled this devastated community to begin the recovery process. Without a financial infusion from the insurance industry, a recovery of this magnitude would have been even more difficult."

According to department data, 562,734 residences not covered for earthquake losses are located in counties rated seven or higher on the Mercalli scale, which measures vulnerability to earthquakes. Missouri is the third-largest market for earthquake insurance among states, exceeded only by California and Washington. In some counties with the highest risk of catastrophic earthquake damage, 80 percent of the homes are uninsured. In 18 of Missouri's 114 counties, less than 10 percent of homes have earthquake coverage. 

On average, premiums in the six counties that comprise the New Madrid area increased by more than 500 percent between 2000-2014, and in one county by nearly 700 percent. In 2000, more than 60 percent of homes in the New Madrid area had earthquake coverage. By 2014, the rate of coverage had plummeted to 20 percent.

A study by the U.S. Geological Survey estimates the probability of a magnitude 7.5 or greater earthquake in the New Madrid zone over the next 50 years is 7-10 percent. The probability of an earthquake exceeding magnitude 6 over the same period is 25-40 percent. A joint assessment by the Mid-America Earthquake Center of the University of Illinois and the Federal Emergency Management Agency predicts the New Madrid event could constitute the highest total economic loss of any natural disaster in U.S. history.