Quake Safety: Retrofit, Insurance, Or Both?

Insurance carriers track the pulse of California’s earthquake liabilities, just as they monitor trends in fire, flood, hurricanes, and other hazards that cause claims to be filed for property damage, injury or death.

Warnings from seismologists that California is long overdue for a major earthquake has property owners and insurance actuaries concerned. As risks go up, so does the cost for insurance to cover those risks.

There are approximately 15 competitive insurance carriers in California, but when it comes to older buildings, that number dips sharply, particularly for buildings with five or more units under one roof.

“The insurance market is getting squeezed,” noted Matt Fuller, president of Fuller Insurance Company., in an earlier interview. “Carriers are becoming more discriminating than ever these days. They’re looking for upgrades on older buildings, including retrofits. When the upgrades aren’t done, a growing number will either increase premiums, modify coverage or decide not to

Do you know…

AAOC Membership Counselors are on hand to give members general guidance to help with day to day operations of your property?

insure the building at all.”

On the other hand, carriers have also started encouraging or requiring retrofits and upgrades. While these safety improvements might be expected to reduce insurance rates for pre-1978 soft story structures that undergo an earthquake retrofit, they just as likely to simply make the buildings eligible for coverage.

Insurance, retrofit, or both?

Some apartment owners struggle over whether to purchase earthquake insurance, if they can find it, do a seismic retrofit, or both. Tragically, too many go with a fourth option. They take a do nothing approach, essentially going bare, which puts their property, their assets, income and their tenants at extreme risk.

The California Department of Insurance offers the following guidelines to anyone considering earthquake insurance.

• Is your building located where earthquakes are common?

• Do you own a high-risk structure?

• Can you afford pay your full recovery costs if you do not have earthquake insurance?

Risk of liability for loss of life or limb is another important consideration.

Decades of scientific research have been done on quantifying building performance in extreme events. Credible models of risk have been developed and are used today by insurers o price

BY ALI SAHABI

hazard insurance.

Insurance may cover a portion of your earthquake losses, but it does nothing to protect your asset, your income or your tenants. If one them gets injured or killed, you could be liable for millions of dollars in damages for negligence for maintaining a hazardous condition.

Are retrofits more cost-effective?

Apart from the high premiums associated with earthquake insurance, the deductible for most policies is around 20% of the cost to replace the building.

A retrofit, on the other hand, is much cheaper—usually only 0.3% of the replacement cost of the building.

That means retrofits cost considerably less than what an apartment owner would spend on the deductible for his or her earthquake insurance.

Retrofits also add value to a property—much like a new roof or upgraded plumbing.

Tenants appreciate living in structures that have been retrofitted for their safety, giving a property an added edge in a competitive market.

About the Author

If you own an apartment you suspect may be vulnerable to damage in an earthquake, contact Optimum Seismic for a complimentary evaluation of your building’s structural safety. Being armed with the facts about the risks you face will help you weigh your best options as you make informed decisions about your financial future. Visit optimumseismic.com for more information or call us at 833 978-7664.