Underinsurance is a crisis in the making

The most important step toward earthquake risk mitigation is an acknowledgment that California is critically underinsured, a dynamic that creates unacceptable risks to our state.

Despite the availability of both private and public earthquake insurance throughout California, only 10 percent of residents have any level of protection. Contrast these woefully inadequate protection levels with the increasing certainty that a major earthquake in California is a matter of when, not if: According to the Uniform California Earthquake Rupture Forecast, there is a more than a 99 percent chance that one or more 6.7 magnitude or greater earthquakes will strike somewhere in California before the year 2044.

A 2008 U.S. Geological Survey model of a magnitude 7.8 earthquake — the same magnitude as the quake that devastated Turkey and Syria — on the southern San

Andreas fault forecast more than 1,800 deaths, 50,000 injuries and $200 billion in damages. Because most of these losses would impact uninsured properties, property owners would be forced to turn to the government for public assistance to rebuild, make necessary repairs or find new housing.

In sharp contrast to the mechanics of private insurance, where insurers promptly investigate and adjudicate damage claims, the aid process is long and inefficient. Uninsured property owners can petition the Federal Emergency Management Agency for emergency assistance, but this money can take months to navigate federal and state red tape before it reaches people. Even then, the maximum payout from FEMA for repair or reconstruction of a property is $200,000; for personal property, including vehicles, the maximum is $40,000. In reality, FEMA typically doesn’t pay to rebuild homes and instead directs displaced persons to temporary trailers known as “FEMA housing,” where they often live for years after the event in question.

Government aid is not only inefficient and unresponsive to the needs of Californians, but it is also expensive. Hurricane Ian, which lashed Florida last year, cost FEMA $1.4 billion in public payments to uninsured households and to state agencies. Appropriate levels of insurance protection would transfer much of this burden from taxpayers to private insurers and accelerate the repair and reconstruction that are critical to economic recovery.

Consider a scenario in which our state experiences extreme flooding and a damaging wildfire season in the same year as a major earthquake. A clustering of disasters could displace thousands of Californians, who would be forced into temporary housing for extended periods. Damaged properties would sit idle until government aid finally arrived and, even then, the aid would be insufficient to rebuild many metropolitan areas, delaying economic recovery for months, if not years.

The search for revenue to finance humanitarian and economic aid would end with the California taxpayer, the payer of first resort in an underinsured state like California.

It is time for California’s leaders to consider underinsurance for what it is: a crisis that threatens the economic viability of our state. Education about our individual and collective risks is badly needed to ensure that our state’s communities are adequately prepared for the inevitable.

Mac Armstrong, chairman and CEO of Palomar Holdings