Is California Prepared for the Next Big One?

SAN FRANCISCO—Fires and power outages have been in the headlines as of late, but there is no discounting the risk from earthquakes, given the state’s seismic proclivity. For example, in August, the San Andreas fault had 307 earthquakes in 24 hours.

In the good news column, one recent technological advance allows scientists to predict aftershock effects before earthquakes start. California is now spending $16 million to install thousands of quake-detecting sensors statewide.

But, the fact remains that earthquakes are a part of life here. And, Steven Steckler, president of Sentry Claims Group, a provider of catastrophic and property/casualty claims adjusting, says residents with earthquake insurance will see premiums double and triple to reflect the growing seismic risk. In this exclusive, he shares some insights on what insurers are doing to prepare for large-scale disasters, how residents can prepare, and how technology is being used to assess damage and file claims.

GlobeSt.com: Are insurers adequately prepared to handle damages from the next big one?

Steckler: Should a major earthquake hit California again and it is in any of the most populated cities, the damages would be catastrophic. The residents and their insurance companies would be overwhelmed with the sheer volume and depth of claims. Also, I would be remiss if I did not reference the cost from displacement along with residential and commercial property damages, which would be historic due to the amount of people living and working in these affected areas.

GlobeSt.com: What are insurers doing to prepare for large-scale disasters?

Steckler: We cannot speak for all insurance companies but the carrier partners we represent are proactive in their preparation of a major event. For example, since firms like us are an insurance company’s first line of defense, we are informed and tested annually. All information gathered from the insurance industry is shared with us. Secondly, we are engaged and graded for mock drills that engage our management teams along with our field support teams. During these exercises, we must validate all personnel’s licensing and certifications.

GlobeSt.com: What are insurers not doing that should be done?

Steckler: Insurance companies in providing earthquake coverage are only capturing 10% of people who do qualify for the coverage. The reason is twofold–deductibles are too high for the average person–usually 5 to 20% of the policy limits. So, since these deductibles are so high, we also know that 90% of all damages end up being below the deductible. So, from a consumer point of view, they say, why bother?

GlobeSt.com: Are California residents and homes equipped to rebuild after another major earthquake? What does this rebuild look like and how long would it take?

Steckler: The answer is no. There are many reasons why, but let’s look at two reasons why not. With almost 39 million people living in California and only 10% having earthquake coverage, recovery will be slow if not nonexistent. If we have learned anything from history, it is that if people do not have monies coming in from insurance dollars for rebuilding, the whole system stalls and whole zip codes fall into total disrepair. Adding to the challenges is the sheer volume of support teams needed such as emergency personnel, medical staff, adjusters, engineers, contactors and all their subs, all of which would be pushed to the limit.

GlobeSt.com: What can residents do to prepare for when another major earthquake hits the region? 

Steckler: First and foremost, they should make sure their homes follow the standards set forth by the California Earthquake Authority and the earthquake brace and bolt program. These standards at least strengthen the structure and help to secure it from leaving the slab or piers. Secondly, we would suggest getting earthquake insurance. Anything could be better than nothing. Being proactive and not falling into the 90% trap of having no coverage may be the saving grace.

GlobeSt.com: Are there other methods for insurers to mitigate risk? 

Steckler: The insurance companies have already mitigated most of their risk. With deductibles being higher than damage(s) 90% of the time, along with less than 10% exposure, companies should be able to weather the next big one.

GlobeSt.com: Could insurers drop homeowners, like the recent wildfires? 

Steckler: If major losses do occur, then of course, companies can always ask for increases in premium or just quit writing the coverage. Sometimes companies can just leave the market all together. Remember they are a business and must show profits to remain solvent.

GlobeSt.com: What new technologies are being employed to handle the assessment of the damage and file claims? Will these technologies help handle massive claims filing?

Steckler: With the new technologies being introduced like drones and robotics with attached cameras, assessing areas that have been affected/damaged will help in locating damages to infrastructure and externally to properties. However, these technologies are not yet capable of the type of detail needed for our safety. They cannot let us know the extent of the individual physical damages or the actual costs to rebuild. So in short, no technology at this time can replace the human element, especially on such a large scale.