Seattle Earthquak Wracks Up Insured Losses
The most telling number about the earthquake that hit Western Washington on Feb. 28 was neither its 6.8 magnitude nor the fact that it was the largest temblor in the state in more than half a century; it was its depth, some 30 miles below the earth’s surface at its epicenter, 11 miles northeast of Olympia.
Because of its depth, surface ground movements were only one-fifth of the 1994 Northridge Earthquake in Southern Califor-nia, which had a magnitude of 6.7 but a much shallower epicenter, according to George Thomas, a seismologist at the University of Washington.
While it may not have been The Big One, the quake likely will be Washington’s worst catastrophe ever and could wind up producing more insured damage than the 1989 Loma Prieta Earthquake that hit Northern California. Total economic losses are currently estimated at $2 billion to $4 billion. The Insurance Information Institute, using a computer modeling estimate from Boston-based Applied Insurance Research, said insured losses could reach $1 billion. (Loma Prieta’s insured loss total was $1.1 billion.)
The last big quake in Washington also had its epicenter near Olympia. The 1949 temblor produced $25 million in insured damage (about $180 million in today’s dollars), killed eight people and damaged more than 1,000 buildings. The recent quake resulted in no deaths, although one woman had a fatal heart attack during its 45-second duration.
The insurance industry’s official catastrophe loss source, the Property Claim Services division of the Insurance Services Office, won’t have an estimate for a few weeks. Whatever PCS produces, it undoubtedly will carry the label “preliminary,” as quake damage totals take months, even years to compile. Seven years ago, PCS released its initial Northridge figure: $1.5 billion. Northridge ended up producing more than 10 times that in insured losses.
To date, claim activity has been slow. “I thought we would be just inundated with phone calls,” said Sue Knobeloch, vice president of personal lines for Tacoma-based Bratrud Middleton Insurance. “We haven’t been.”
Knobeloch, whose brokerage is one of the largest in the state, estimated that Bratrud has had about 10 claims, which is notable because the firm has offices throughout the affected region, and she said that about 15 percent of Bratrud’s homeowners policies have an earthquake endorsement.
Kemper housed its catastrophe team in Bratrud’s headquarters for a couple of days before realizing it didn’t need much of a team. “I think people right now don’t know what to look for,” Knobeloch said.
That’s understandable, given that Washington residences and businesses haven’t been through a quake that caused significant claims activity since 1965.
Knobeloch noted that the lack of claims so far could be a result of Washingtonians heeding the warnings to have their homes retrofitted. “I think so many people have heard for years that you need to retrofit your home, a lot them have done that,” she said.
Still, much of the quake’s damage, outside of the much publicized scenes of fallen bricks in Seattle’s Pioneer Square and structural problems in the State Capitol, may be latent rather than blatant at this point. Nearly a week removed from the quake, the Puget Sound area had seen no rainfall, which could alert homeowners and businesses to leaks and unseen structural problems.
Estimates of Washington property owners with quake coverage vary widely. Karl Newman, executive director of the Washington Insurance Council in Seattle, said he’s heard figures for personal lines as low as 5 to 8 percent—which he said is too low—to 12 to 20 percent. Washington Insurance Commissioner Mike Kreidler placed it at 12 percent. It’s likely, however, that the percentage is greater in the Puget Sound basin.
SAFECO spokesman Le Roi Brashears said 8.5 percent of his company’s nearly 183,000 home-owner insureds in Washington have quake coverage, while 13.6 percent of SAFECO-insured homes in King County and 12.8 percent in Thurston County are covered.
Seattle-based PEMCO estimated its quake coverage penetration at 17 percent.
By contrast, State Farm is not only the leader in writing homeowners business in the state; it is far and away the leader in providing earthquake.
Nancy Carpenter, State Farm public affairs specialist, said nearly 27 percent of the company’s 420,000+ homeowner policyholders in the state have the quake endorsement. In addition, State Farm provides quake coverage to more than 3,000 businesses in Washington, Carpenter said, out of 28,453 commercial property accounts.
While 10 percent is the most common deductible, Knobeloch said some of Bratrud Middleton’s accounts have 3 percent. Such low, single-digit deductibles were the rule, not the exception, in Washington several years ago; until property reinsurers looked at new seismic maps of the Puget Sound basin and told primary insurers to increase their deductibles.
Three years ago, SAFECO became the first insurer writing quake in Washington to go to a California-like mini-policy, which has minimal coverage for contents and no coverage for structures that are not part of the main residence. Few insurers have followed suit.
The mini-policy “allows us to manage our earthquake exposure better so we can offer more coverage to more people,” Brashears said.