Croatian Resident from California on Earthquake Insurance Policy Back in the USA

1994 earthquake in Northridge, California. Photo by FEMA/Wikipedia/Public Domain

One of the many things we have learned in the wake of the devastating 2020 earthquakes in Croatia is how few people have an earthquake insurance policy. Industry experts put the figure at about 85% of homes without an earthquake insurance policy in Croatia. As we saw yesterday in With 85% of Croatian Properties Not Covered for Earthquakes, an Insurance Expert Speaks, of the officially estimated 100 billion kuna earthquake damage of 2020, only 237.5 million kuna had been paid out in November, or 0.2375%.

One of the responses I had to the article was from a Croatian now retired here, but who lived most of his life in California, a region known for its earthquakes. Here is what he sent me about how the earthquake insurance policy works in California.

California insisted that, in order to operate in the state, an insurance company must offer (as an option) earthquake coverage. After the Loma Prieta and especially Northridge, companies started pulling out of California rather than sell earthquake coverage. The crisis was resolved by the setting up of a state-backed fund and insurance provision, that was sold through insurance companies.

But it was expensive. It was limited in that it only provided 75% cover and only if you suffered a big loss, many tens of thousands of dollars. And worst of all, if there was a big earthquake and the fund ran out, policyholders who were not affected would be called on to pay more into the fund. Unsurprisingly coverage dropped to negligible levels.

Time passed and more time passed, and there were no devastating earthquakes. Insurance companies’ drive for more income eventually caused some of them to come back into the market. But it is still expensive. Regarding conditions, there were no special requirements for an earthquake to be a particular strength. It had to be an earthquake though – subsidence, landslides and the like, not caused by an earthquake, were not covered. We decided it was not worth the price, as it would have more than doubled our cost. In 23 years we saved probably over $30000, but yes we were taking a risk. Oh and we had to sign a bit of paper every time we renewed, that we had been offered earthquake insurance and declined it.

Another thing unique to CA (maybe to other US states too) is that your mortgage was something you could walk away from, leaving the property to the mortgage holder. Unlike any other loan, they could not come after you for the difference in value, even if the property was destroyed.

CA also had a state insurance commissioner whose job was to make sure companies behaved. He had real teeth and used them

This is an issue which we will be continuing to monitor at TCN. If you have anything to contribute, please contact us at [email protected] Subject Insurance

For the latest news from the Petrinja earthquake, visit the dedicated TCN section.

If you would like to donate to the earthquake relief efforts, my recommendation is Glas Poduzetnika (Voice of Entrepreneurs) fund – full details here.