Wichita agents fielding more questions on earthquake insurance

With a recent increase in the number of earthquakes felt around Kansas, some Wichita insurance agents say they’ve had more people ask about getting earthquake insurance.

Rates for homeowners to buy earthquake policies are roughly $50 a year for a $100,000 house, with a deductible of between 2 and 10 percent, from some companies.

But it’s unclear whether earthquake insurance rates will increase if there continue to be more frequent quakes.

Earthquake insurance isn’t typically part of regular homeowners insurance, but it can be added on, or homeowners can buy it through a separate policy with most insurers.

Most earthquake policies cover only structural and foundation damage – not protection for your TV falling off a wall, for example, said Chock Chapple, owner of the Chapple Insurance Group in Wichita.

Because there hasn’t been much damage here and insurance companies haven’t had to pay out many losses, rates have stayed relatively low, he said.

According to the Insurance Information Institute, a nonprofit communication organization for the insurance industry, about 8 percent of homeowners in the Midwest have earthquake insurance.

The number of Kansans who have earthquake coverage is unclear because the Kansas Insurance Department does not have a method to track earthquake riders or endorsements, said Bob Hanson, the department’s communications director.

In 2013, Kansas ranked 33rd in the country for premiums written by companies for earthquake insurance – about $7.6 million – compared to $1.6 billion in premiums in California.

Typically, a higher risk for damage means higher rates for insurance, said Janet Ruiz, the California representative for the Insurance Information Institute.

So in Kansas, even though there’s been a higher frequency of earthquakes, Ruiz said it’s not likely that rates will increase unless there’s more damage.

“The companies look at a history of what’s gone on. … Generally, insurance is more based of history of claims,” she said.

Oklahoma’s earthquakes

In Oklahoma, which has been the epicenter of several larger quakes in the past year, more homeowners are buying earthquake policies.

For years, about 2 percent of Oklahoma homeowners opted for additional earthquake coverage. In 2015, that number increased to 15 percent, said Gordon Amini, with the Oklahoma Insurance Department in Oklahoma City.

The average earthquake policy in Oklahoma is about $300 a year on a $100,000 house, and that rate has stayed fairly constant, Amini said.

“I think low pricing and ready availability tells me the insurance companies don’t view this as a precursor to something much bigger,” Amini said.

Last fall, the Oklahoma Insurance Department required that insurance companies clarify their policies for consumers, particularly whether they cover both man-made and naturally occurring quakes. Scientists have linked the recent seismic activity in Kansas and Oklahoma to underground disposal of oil-drilling wastewater.

The increase in disposal is a side effect of expanded oil production brought on by a boom in “fracking,” a process that uses high-pressure liquids to break underground rock to reach previously inaccessible pools of oil.

The fracking itself is not thought to be a direct cause of the quakes. The wastewater that comes up with the oil is injected into deep rock formations because it is too polluted with salt and oil to dispose of on the surface.

Although most companies will cover earthquake damage regardless of how it occurs, Amini said, some companies in Oklahoma continue to cover only naturally occurring quakes.

“We wanted them to take a position,” he said. “They were all over the map on the issue and it changed seemingly from week to week.”

That’s why Amini urges people to carefully read their policies to make sure they are adequately covered.

Missouri’s fault line

Missouri, which has the New Madrid fault line running through the southeast toward St. Louis, is the third-highest market for earthquake insurance after California and Washington, according to the Insurance Information Institute.

Over the past few years, fewer insurers have been offering earthquake coverage there. And those that do are offering it at a much higher price, with some areas seeing a 500 percent price increase in the last 15 years, according to a recent report by the Missouri Insurance Department.

The deductibles are high as well, with 40 percent of them being 20 percent of the home value or more.

Those changes in the market have led to fewer people buying earthquake insurance, according to the department. For example, in 2000, more than 60 percent of residences in the New Madrid area had earthquake coverage. In 2014, it was 20 percent.

Insurance considerations

People who are considering buying earthquake insurance should talk with their insurance company to find out what policies are available.

“When you look at a decision as to when is the right time to buy insurance, it’s as unique as the customer asking. Everyone has a comfort level when it comes to risk,” said David Kemp, an agent with State Farm in Wichita, who said he personally has earthquake insurance.

Cost for individual policies can vary with things like the age of the house, structure and home value. Wooden frame houses typically hold up better than bricks, which are more brittle, Kemp says.

And Amini, with the Oklahoma Insurance Department, says people should look carefully at whether their policy would cover bricks if they have a brick house.

Chapple said his company is especially seeing more inquiries by businesses. Some lending institutions are now requiring it for commercial lending, he said, which he thinks could become more of a trend if the quakes continue.

“It’s definitely time to price it out,” Chapple said.

This story was originally published January 7, 2016 at 8:03 PM with the headline "Wichita agents fielding more questions on earthquake insurance."