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Unique Perils Impact California Homeowners Insurance Rates

By Mike Heuer

Owning a home in California means putting up with perils not widely seen in most parts of the nation. Yet, the average rate for California homeowners insurance is below the national average.

On average, California homeowners insurance costs about $739 per year, which is lower than the national average of about $900 per year, according to the National Association of Insurance Commissioners. Wildfires each year cause a great deal of damage and destruction in the state, and so does wind and hail damage, and most homeowners seek protection against them with their home insurance plans. But there is a very destructive peril that the majority of homeowners in the state simply choose to ignore, and that could be a big mistake.

Earthquakes are one of the most prominent perils California homeowners face when living in the Golden State. And the state’s earthquake authority provides reasonable rates for earthquake insurance coverage, which typically is excluded by home insurance plans in California. Rates for earthquake coverage to accompany California homeowners insurance plans can run about $2 to $3 per $1,000 in home value for wood-frame homes and as much as $15 per $1,000 for brick structures that are more vulnerable to earthquake damage as they are not as flexible as wooden structures. Yet, most homeowners skip earthquake insurance.

As few as 12 percent of homes in California have earthquake insurance policies in place, according to the Insurance Information Institute. Earthquake insurance protects against collapsed walls and structures, damage to contents and can help replace damaged or destroyed furnishings, fixtures and personal property. It also provides coverage for temporary relocation if a home is damaged or destroyed by an earthquake and the owner must relocate while it is repaired for rebuilt. But most homeowners in California prefer gambling their homes won’t suffer significant damage or total destruction from an errant earthquake.

California homeowners insurance plans used to include earthquake insurance coverage up until 1994. The infamous Northridge earthquake struck in 1994, inflicting a great deal of damage and destruction in northern California, including collapsing bridges and overpasses and killing many people. Afterward, many state officials created the California Earthquake Authority and relieved property and casualty insurers of task of providing earthquake insurance coverage for homes and other properties.

By 1996, about a third of homes in the Golden State carried earthquake insurance, but the number since has dwindled by more than half. Part of the reason is there has not been a large catastrophic earthquake since the 1994 event, and many Californians are accustomed to the occasional tremor. But that still leaves a great deal of homes vulnerable to potential catastrophic damages that will not be covered if they are stricken by another large earthquake.

In addition to earthquakes, California homes are very vulnerable to wildfires when located among the many wooded hills and near forested areas. The federal government during the 1990s enacted laws stopping logging operations from selectively removing downed timbers in federal forests, and that leaves a great deal of fuel for potential wildfires. Each year, one or more wildfires break out in California and remind people of the extreme dangers such perils pose. The next big earthquake might do the same.