Home > Property & Casualty > Earthquakes in the Northeast – are we insured?

Earthquakes in the Northeast – are we insured?

Every time there is a huge earthquake in one part of the world, it is common and certainly appropriate for other parts of the world to consider the risk of earthquakes closer to home. The Northeast is home to infrequent but not insignificant earthquakes. During 2010, an earthquake in Bernardsville, New Jersey along the Ramapo fault clocked in at 2.6 on the Richter scale. Later that year, a 3.9 quake was registered off the New York and New Jersey coastline.

Larger quakes have occurred in historical time. A 5.2 magnitude quake along a fault that runs roughly along 125th Street in Manhattan caused great damage in 1737. Similarly, a 6.2 quake near Gloucester, Massachusetts caused damage in Boston, Salem and other colonial cities. A quake of the same strength and in the same place today is predicted to cause about $1.6 billion in damage and result in 10 deaths according to estimates by the Northeast States Emergency Consortium. If centered in Boston, the financial losses would exceed $10 billion according to AIR Worldwide, a Boston-based risk management consulting firm.

Earthquake insurance is generally available in the Northeast and it is much cheaper to buy than in California or near the New Madrid fault in Missouri. Larger businesses tend to buy at least a sublimit of coverage for earthquake perils, but seldom up to their full limits of catastrophic exposure. Homeowners seldom buy insurance for an earthquake loss. The risk is seen as too remote and the insurance is costly.

That would likely leave cities and states in the Northeast looking to the federal government to bail them out for the costs of recovery and renewal after the losses from an earthquake. Infrastructure repair alone would be hugely expensive, perhaps approaching the level of a Hurricane Andrew or Katrina. Perhaps the recent run of earthquakes in Haiti, Chile, New Zealand, and now Japan may cause insurance buyers in the Northeast to think anew about their risk management strategy.

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