New Earthquake Insurance Options

According to the CEO of the California Earthquake Authority (CEA), less than 10% of homes in the state have earthquake insurance. This is not news, but why the figure should be so low in a state riddled with geological fault lines is something that has been discussed for years. In an effort to bring more homeowners into the coverage fold, the CEA is offering new coverage options this year. The main features of the new options, which are part of the CEA’s Earthquake Brace and Bolt program include:

• Deductibles ranging from 5% to 25%
• Increased coverage limits for personal property and for additional living expenses
• Increased discounts for homeowners who submit proof of retrofitting their homes to achieve better earthquake protection
• An expanded residential mitigation program that can provide up to $3,000 to owners of homes who are eligible for seismic upgrades.

Policies must be bought from participating insurance companies along with a homeowner’s insurance policy. One of the main reasons why people are reluctant to buy earthquake insurance has been that it was felt that deductibles and premiums were too high. The previous deductible options were limited to 10% and 15%. Now policy holders can choose from a variety of options ranging from 5% to 25%. The basic concept of the lower the deductible the higher the premium still applies. To put it in another way, a home with an earthquake insurance policy for $500,000 and a 10% deductible will have to suffer damage of $50,000 or more before the policy pays off. If the deductible is 5%, the damage must be $25,000 or more for the policy to pay out. Of course, the premium in the 5% deductible will be higher, even though the coverage is the same in both cases.

It’s Expensive, but Essential

The overall cost of earthquake insurance has not been reduced by the new program. However, with the option to go in for higher deductible, it is expected that the lower premiums will bring more homeowners in the coverage fold. If your home has been retrofitted, you are entitled to a 5% discount on your premium. If you get the improvements verified by a licensed engineer or contractor, you may be eligible for a higher discount, but note that the cost of the verification could be a few hundred dollars.

The improved coverage for personal property and living expenses is welcome. The personal property cover is now $200,000 which is double of what it was and living expenses coverage is up 4 times to $100,000. Once again, the increased overage option comes at a cost in terms of higher premiums.

What it boils down to is that the cost of earthquake insurance has not come down. However, there are now a number of coverage options and deductible choices that can make purchasing a policy more affordable. All this may seem to confusing. It will be a good idea to contact your insurance broker to find out how these changes could benefit you and how much they will cost.

A Shaky End To 2015

A moderate earthquake shook Southern California near the San Bernardino area a few days before the end 2015. While there were no immediate reports of any damage or injuries, thousands of people were given a start. According to the U.S. Geological Survey (USGS), the quake measured 4.4 on the Richter scale and was followed by aftershocks of 3.8 and 3.2 minutes after the initial tremor. A large number of minor aftershocks were recorded in the following hours. Around the same time a 4.8 intensity quake in Canada was felt in Washington State. Once again there were no immediate reports of injury or damage.

It’s Nothing New

People living in California are used to earthquakes and take them in their stride. While the yearend quake was of moderate intensity, it was not abnormal. While quake activity has reduced slightly in recent years, moderate ones are a traditional monthly occurrence in Southern California according to a USGS seismologist. So what is so newsworthy about the yearend quake?

The epicenter was near the intersection of the San Jacinto, Cucamonga and San Andreas faults, the most earthquake prone part of the state. While moderate in intensity, it was too small to determine which fault was the cause, so it could be any of these. There have been 9 magnitude 4 quakes in this region over the last 10 years. If none of these did any serious damage, then why the worry? The reason is that the USGS says that there is a 5% chance that a quake of this type could be the precursor of something bigger. 5% may not seem like much of a risk, but when you consider that there have already been 9 of the 5% possibility incidents in the last 9 years, another picture emerges. How much longer before the 5% probability turns into a reality?  If a major quake does occur, it will not be something you will be able to forget about soon. Worrying about a coming quake is not being a scaremonger. The worry is based on hard scientific evidence and data. Studies done by NASA indicate that a major quake will hit the state in the next 2 years.

How Protected Are You?

You probably have homeowner’s insurance for your home. But this will not cover damage or loss due to earthquake. Earthquake coverage requires a separate policy. According to a study done by Bloomberg, 88%, or 8 out of 9 Californians do not have earthquake insurance. Other studies have slightly differing figures, but they all agree that the majority of homes in the state are not covered against quakes. Nothing can be done to stop an earthquake. A major one will always cause damage and possibly injury. The only way to cope with the loss and recover from it is to have adequate earthquake insurance that will allow you to repair your home and, in the worst case, rebuild one that has been destroyed. Talk to your insurance agent to work out the coverage you need and how much it will cost you.

The Next Big Quake is Due

For those living in California, earthquake predictions are a part of life. So much so that most minor tremors are often not even noticed. Warnings of an impending big one are usually given about as much importance as announcements that the sky is falling.

No One Is Crying Wolf

Experts at NASA’s Jet Propulsion Laboratory (JPL) say that a big quake will hit the state in the next two and a half years. By big they mean a 5.0 magnitude, and perhaps even higher – up to 6.1 or more. The warning is based on extended research using the best technology available today. Earthquakes occur when the underground stress between the tectonic plates reach acritical point and the plates shift. The small and moderate quakes that are a common occurrence in the state do relieve some of the stress, but they can also cause the plates to shift to a more volatile position, making a big quake more likely. According to JPL, there is a 99% chance of a 5.0 magnitude quake hitting the Los Angeles area within 3 years. No part of the state is immune from the risk.

The U.S. Geological Survey says that the risk may not be so great. They say it is about 85%. But does that 14% reduction really mean much? Whichever source you believe, the chances are that a big quake is coming and coming soon. These are not doomsayers standing on street corners saying that the end is near. These are predictions from 2 of the most reputed scientific organizations in the world.

Earthquakes Are Inevitable

California has survived major quakes in the past and will do so in the future. The technology for earthquake prediction is improving and new materials and building systems are reducing the damage they cause. But earthquakes are the most powerful force of nature and will never be a way to completely negate the damage and loss they cause. Many people think that federal and state aid for earthquake victims will help them recover. It will not. This aid is meant only to provide immediate assistance to enable those affected to survive. It will not help them to get back on their feet and rebuild their lives.

Are You Prepared?

Being prepared for a quake does not mean building a concrete bunker and never leaving it. Preparedness is understanding the damage that a severe quake can cause and taking steps to protect your family and property if it should happen. The California Department of Public Health portal on Earthquakes contains a great deal of information on quakes and how you can prepare for them. More information can be obtained online and from municipal authorities. No matter what you do, damage to your home will always be a risk. The only protection you have and the only way to recover from it is with earthquake insurance. Your homeowner’s policy will not cover quake damage. You will need a separate policy for this. If you do not have coverage or are worried that what you have may not be enough, contact an insurance agent to learn what you need to do to protect your home and your future. Remember, the next one may be really big.

Why Californians don’t invest in Earthquake Insurance Part – 2

Rationalizing the reasons to avoid spending on earthquake insurance is easy. Starting with the reason, “It always happens to the other guy” to more complex justifications, there are a huge number of excuses for not buying a policy. Among the most common are:

• A home survived the last quake without any damage. That may be so, but it is not a good enough reason. Each quake is different and a region that has historically only suffered from mild tremors could have a major quake tomorrow. Just as there is no way to accurately predict where and when an earthquake will happen, there is no way to know how strong the next one will be. Historical precedent means nothing. In addition, new fault lines are being discovered regularly and even if there has never been a quake near a newly discovered fault, it is no guarantee that an earthquake could not happen next week.
• A home is earthquake proof. New construction techniques can be used to make a structure more earthquake resistant. Retrofitting of older homes to enable them to withstand stronger temblors is possible. But there is no such thing as a completely earthquake proof home. There is no technology available today that can protect a home from a truly massive quake. And even if the techniques that can increase a home’s quake resistance, exist today, these very same techniques need to be properly applied. For example, bolting a home to its foundation, is a popular way in increasing quake resistance. Regardless of these new developments, studies show that while it may be of some help in protecting a one story wood framed building, structures of two or more stories, those with big gaps in the frames and those with big picture windows are more likely to suffer quake damage, if bolted to the foundation. And a strong foundation is of no use if the ground beneath the home crumbles completely, like the earthquake that hit Anchorage Alaska in 1964, when a whole neighborhood was washed out to sea.
• FEMA will come to the rescue. Homeowners affected by an earthquake may be eligible for low interest FEMA loans to help them rebuild and get back on their feet. Remember however, that these are loans; the money, along with interest, will have to be repaid. Moreover, these loans will be added to a person’s net worth statement as a liability which will offset the equivalent quantum of assets. Another factor to take into account is the growing reluctance in Congress, faced with numerous natural disasters, to hand out money to those who did not bother to get insurance to protect themselves.
• Let the bank take it. Those with very little equity in their homes, owing to huge mortgages or other reasons like large decline in home prices, may be tempted to hand over the keys of a ruined home to the bank and walk away. Even the little equity available will be lost and perhaps more importantly, their credit rating will suffer, consequently making it very difficult to finance another home for a very long time.

Don’t Set Aside the Odds

Granted many may argue that the odds of an earthquake striking their homes down, are more in their favor. Many may reason that the probability of winning a lottery ticket is much higher than the probability of an earthquake happening in their neighborhood. Stop! Think! Winning a lottery ticket would be awesome, but lack of earthquake insurance, when calamity strikes, would be disastrous. All of the above reasons also would not be of any help, when it is too late, especially when you live in an earthquake prone region. 

Common Business Property Insurance Gaps

To lecture business owners about the need for business insurance is like preaching to the already converted. They know the risks that they face, and do their best to take the insurance coverage they need within the insurance budget available to them, especially when it comes to business property insurance. In a perfect world, a business would be insured against every possible calamity. But we do not live in a perfect world and insurance costs money and with competing demands for every dollar, business owners opt for optimal, not total, coverage. It makes sense – why should a business located in a place that has never seen an earthquake take out earthquake insurance?

Business property insurance offers protection against loss or damage to the place of business and the contents of the premises. The first thing to do to ensure that a business is properly insured is for the owner to ask himself a question – “ If the premises and contents are lost, will the coverage enable me to go back to where I was before the loss?” This can be done by totaling the cost of recovery from catastrophe and seeing if the coverage is for the same amount. But it’s not that simple. There are usually exclusions that limit the coverage and it is in these gaps in the protection that danger lurks.

Plugging the Gaps

The first thing to look at is the total cost of recovery. This is not the same as a valuation for property tax or real estate marketing – these will never cover the cost of getting back on your feet. The cost of recovery is a top down valuation of what it will cost, at the current prices, to recreate everything. This can be done by getting estimates from builders and suppliers and basing the coverage on that. It could result in overestimation, but after a disaster, you will not be in a position to spend time shopping around for the best deals. Overestimation is better than getting caught short. This is an exercise that must be done once a year.

Most commercial property insurance plans do not include floods or windstorm damage or loss. These are not frequent occurrences in many parts of the country if there has been no severe weather for a couple years, people tend to forget about the dangers. And the premiums are not cheap. But after Katrina, Sandy, Ike and other storm and flooding disasters, it is obvious that these things can occur without warning after a long period of quiet. If your business is in a floodplain or a region where windstorms can occur, even if they have not for many years, you should check the exclusions on your insurance and plug any gaps in your coverage.

Another often overlooked gap is Ordinance Compliance Coverage (also known as Ordinance or Law Coverage). This will cover the costs of upgrading a structure to conform with existing building codes. But what does this have to do with a disaster? An existing structure may not have to comply with modern codes as long as the structure is not rebuilt or renovated. But after a disaster, if substantial repair or rebuilding is required, then modern codes must be complied with. And these cost money. For example federal regulations require that if a structure on a flood plain is damaged in excess of 50% of its market value, it must be rebuilt in conformity with current codes. In most cases, business property insurance does not cover this additional cost. If you do not have this, getting this extra coverage is a very worthwhile expense.

The right thing for a business owner to do is to consult an insurance professional to look at all the coverage options (and costs) available to him. Each potential coverage option should be reviewed in terms of historical risk, operational risk and complete repair and / or replacement costs. Covering every base may not be possible, but knowing where you are unprotected will at least prevent any unpleasant surprises.

Insurance by Allied Brokershas been helping businesses in the Bay Area for over 50 years with their property insurance needs. If you have questions about the possible gaps in your business property insurance, call us at (650) 328-1000.

20 Years after the Northridge earthquake – Did We Learn?

It has been 20 years since the Northridge earthquake hit the Los Angeles area resulting in several deaths, thousands of injuries, huge business losses and massively disrupted transportation systems. The total cost of insured damages was over $15 billion – that’s about $24 billion in today’s money. It was, and remains today, the 4^th costliest disaster in U.S. history. It’s easy to think that 2 decades after such a calamity and many smaller quakes later, things will have changed, at least as far as earthquake insurance goes. The truth is that it hasn’t.

Quake Insurance – Who Wants It?

There has been about a 33% increase in the number of earthquake policies in force in California as compared to 1994. That may sound impressive, but the fact is that only 10.6% of homeowners in the state have earthquake insurance. There are 3 reasons for this. This first is the fact that 20 years on, the memories of the destruction have faded. Secondly, quake insurance is thought to be too expensive. And thirdly, most people think that if such a disaster should happen again, the government will step in to bail them out.

There is nothing that can be done about the shortness of people’s memory. But the other 2 factors need to be considered carefully. As for the government stepping in, disaster relief is limited to providing help in coping with the effects of the quake, not in rebuilding and recovery.

As regard to the high cost of quake insurance, the root of the problem is in the low cost of coverage before 1994. Till that time quake insurance was not a separate policy as it is today. It was simply an endorsement on a homeowner’s policy that was easy to get and cost very little. The fact that the insurance was under-priced is proven by the fact that the losses incurred by the insurance companies because of Northridge to use up all the premium collected by the insurers for the last 30 years.

Some companies almost went under and since California law requires that those who offer homeowners’ insurance also offer quake coverage, many insurers quit the market. After Northridge, almost 1 million policies were dropped.

The Earthquake Insurance Affordability Act

That situation led to the creation of the California Earthquake Authority (CEA) which today has $10 billion in claims paying capacity. 45% of this is in capital while the balance is in the form of reinsurance and catastrophe bonds. While this has helped make the quake insurance more widely available, the cost is still a limiting factor.

Among the many steps being taken to make earthquake insurance more affordable is the Earthquake Insurance Affordability Act which is before the Congress. This bill will enable the CEA to save $100 million in reinsurance costs per yearby providing a federal guarantee of private market debt. This in turn would result in a reduction of premiums by about 20%.

Another step being taken is the reduction in deductibles which today typically stands at 15%. CEA now has a range of polices that allow policy holders a mix and match option where they can increase of decrease contents coverage etc. so as to bring the deductibles down to around 10%.

The aim of these and other measures is to bring the 89% of uncovered homeowners in the ambit of earthquake insurance. The sooner this happens, the better. According to the president of the Insurance Information Institute, “the potential cost of U.S. earthquakes has been growing because of increasing urban development in seismically active areas and the vulnerability of older buildings, which may or may not have been built or upgraded to current building codes.”

However, while CEA coverage is offered by 70% of the companies, Allied Brokers has companies that offer better coverage at a lower cost. We cover personal property, loss of use and separate structures just like a homeowners policy.

Plus our companies are much more financially sound. CEA is an assigned risk pool just like Obamacare; they take everyone with no accounting for risk. This means their losses in a big quake will be bigger. Our companies will not accept high risk homes.

Also when the CEA goes broke, and it will, there is no recourse to collect. Our companies are backed by a state bailout fund and all of the assets of the company and its reinsurers.

Contact Insurance by Allied Brokers at (650) 328-1000 to know more about earthquake insurance or about any questions related to your insurance policies.

Don’t Sabotage Your Escrow Close

Listen to your realtor and mortgage broker- they are the experts! Last week a realtor recommended that her client call us to review their policy well in advance of escrow close and the deadline for waiving the insurance contingencies.

The realtor, being an experienced professional, wanted to get her ducks in a row. She did not want to risk her client being denied the LOAN and risk losing the 3% DEPOSIT and the HOUSE, just because they did not get insurance on time.

The client never called us, choosing instead to use their current agent, who said everything was fine and not to worry. BIG MISTAKE- 24 hours before escrow close, the title company requested proof-of-insurance from the client’s agent. The company refused to meet the lender’s requirements. Since the agent was a company EMPLOYEE, he could not do anything to solve the problem. WHOOPS!

The realtor called Allied because we are an independent insurance broker. Since we work with, NOT FOR, over ten different carriers, we were able to get coverage for her client just in time. Whew, disaster averted!

This happens all the time. There are other insurance pit-falls that can break a real estate deal. We run all the required reports in advance for all our customers. Brush proximity, earthquake and flood exposure as well as prior claims are nasty surprises that buyers and sellers can avoid. Consult with Allied Brokers in advance of escrow close to find out what the required coverage amounts are and then get pre-approved for them. We have the resources to solve any of these problems. That’s why so many realtors and mortgage brokers recommend us to their clients.

Visit our website at http://www.alliedbrokers.com/ for information about all the types of insurance we offer. Or call 1-888-505-7988 for a free rate quote.

Top 5 Reasons Why People Don’t Buy Earthquake Insurance

As a Californian, you are always waiting for the other shoe to drop. Sure, you’ve thought about earthquake insurance, but you talked yourself out of making the call because you assumed…

It’s too expensive-Insurance is meant to cover the losses you can’t afford to pay. $1,500 for insurance to rebuild a $600,000 home is a reasonable price for such a big risk. Our company’s biggest insured loss was with Fireman’s Fund for $900,000. It happened in Los Gatos during the Loma Prieta quake when a Victorian jumped completely off its foundation.

The deductible is too high - Yes, 15% is high, but insurance companies would go broke fixing every piece of cracked stucco. Earthquake insurance is for major damage only- like when the same quake caused another client’s swimming pool to empty completely into his house.

The state will bail me out - Seriously? The State’s broke- don’t count on it.

Insurance companies will go bankrupt - Ok, some might. 21st Century almost did after the 1995 Northridge quake and pulled out of the California homeowner’s market. Allied Brokers, however, represents the only strongest companies in the industry and we steer our clients away from “shaky” carriers.

It will never happen to me - Maybe… or maybe not; how lucky do you feel? Case-in-point: an Allied Brokers client bought a house in Santa Cruz just one month before the Loma Prieta quake. He purchased a normal homeowner’s policy but passed on the earthquake insurance. He gambled that he would never need it. His chimney collapsed and his floors and foundation were severely damaged- to the tune of $60,000. Don’t let the Big One get you! Call Allied Brokers today.

Visit our website at http://www.alliedbrokers.com/ for information about all the types of insurance we offer. Or call 1-888-505-7988 for a free rate quote.

Prepare for Disaster with a Home Inventory

According to the California Department of Insurance, almost 90% of homeowners and renters do not have earthquake insurance. But just having insurance is not proactive  enough. To fully prepare yourself for a disaster, and the insurance claims that follow, you must create a home inventory.

To help, the California Department of Insurance has prepared a free home inventory guide
available at http://www.insurance.ca.gov/. Some recommendations:

1. Use a digital camera to catalogue your possessions and document their values. Photographs of household goods are especially helpful when an item is difficult to describe on paper, or if a purchase receipt cannot be obtained.
2. Label photographs with information about each item.
3. If a video recorder is used, commentary about each item should be included.
4. A copy of the inventory and supporting documentation, such as receipts and model numbers, should be stored in a safe place, such as a safe-deposit box, work office, or a relative's house.
5. These records should also include financial documents such as insurance policies and mortgage information.

You should create a home inventory even if you don’t have earthquake insurance. Review your homeowners' insurance policy with your agent to protect yourself against all disasters, including fire and theft. Determine if you have sufficient coverage limits for your dwelling, personal property, and any expensive items, such as antiques, jewelry, or valuable collections.

Since insurance companies set low limits on the kind of possessions they know will be expensive to replace, you may need to add a rider to your home, condo or renters insurance policy. It’s a bargain- for example; a jewelry rider is only $150 per year per $10,000 of coverage. Your home inventory will come in handy for itemizing jewelry and other valuables you most want to protect.

For earthquake insurance, call Connie Prince at Allied Brokers. Connie is an expert in life, home, auto and umbrella insurance. She holds licenses in health, fire and casualty and is a Silvar Affiliate Member.

To learn about insurance riders, call Chris Falcon at Allied Brokers. Chris specializes in personal insurance lines such as home, auto, umbrella, fire and casualty. His in-depth knowledge and years of industry experience will help you protect the things you cannot afford to lose.

Visit our website at http://www.alliedbrokers.com/ for information about all the types of insurance we offer. Or call 1-888-505-7988 for a free rate quote.

Attention GEOVERA policy holders!

There is a new 10% earthquake retrofit discount available to you at no cost. If your home was built after 1975 it is almost certainly already up to current earthquake building codes. If your home was built prior to 1975 but has been retrofitted, you are still eligible for the discount. If you have your contractor complete the attached form we can apply for the discount.

If you do not have a contractor we would like to refer you to our client Guillaume Peters, owner of Sunviva construction who has done quality work for many of our existing customers in the past. Email him at gheeom@sunviva.com or call him at 650-380-4804. Guillaume will inspect your home to determine whether it meets the GEOVERA requirements. His inspection fee is $125.00. However, as a special promotion Guillaume has agreed to credit the cost of the inspection as payment towards any retrofit work that you hire his company to perform.

Download Retrofitting Information Form!