January 6, 2008
Seismic Changes In Earthquake Insurance
January 6, 2008
Dear Dave: We closed on our new home in the Southport area recently and have decided to add Earthquake Insurance to our coverage. We are a bit confused over rates and how to shop for the best deal. Can you offer any guidance?
Answer: Rates for Earthquake Insurance have gone right off the Richter Scale since Hurricane Katrina, and coverage can be difficult to find. The increase in natural disasters and weather events is proving to be a headache for insurers, all the way to Barclays, the ultimate re-insurer of many disaster policies.
Major insurers, such as State Farm and Allstate, backed off from Earthquake Insurance, and insurance generally for Alaska, seen as the wild frontier by many insurers. However, it is not impossible to obtain earthquake insurance.
State Farm do offer the product for Alaskan Homeowners, but the Deductible has gone from 10% to 15%. That is, if your home is worth $500,000 and an earthquake causes less than $75,000 worth of damage, guess whose problem it is? In other words, earthquake insurance only benefits you in a massive seismic event.
Some insurers will be examining whether your home is in a high risk area for earthquakes and, seeing as you are in Southport, you should take a look at the Seismology Map (available through some Realtors, and certainly through the Municipal Offices on Bragaw Street). Bluff and near-bluff homes are in the high risk area oftentimes, but the map will show you exactly the degree of susceptibility. There are five categories of risk, and clearly visible in the color coded maps. This will also help you decide whether you even need to have earthquake insurance.
The other big Alaskan Insurer is Allstate and they will refer you to Griffin Underwriting Services who, for a premium similar to State Farm, will give you similar coverage, but with the old 10% Deductible. In any event, coverage will be subject to certain conditions, such as the following, set by Allstate:-
1. All properties are located on Firm Natural Ground. Firm Natural Ground is land that has not been increased in elevation or back filled through human means. Firm Natural Ground does not include reclaimed tidal flats or build sites with an average slope exceeding 30% grade.
2. No structures are within 30 feet of slopes exceeding 30% grade.
3. No pre-existing damage or evidence of structural damage (i.e. cracking to walls or foundations) that would cause instability.
4. No past earthquake losses greater than $10,000.
5. The structure has never been declared unsafe by any government office.
6. There have been no past landslide losses.
7. There are no buildings over six stories in height.
As an alternative to the 2 big insurers, you might try smaller companies or insurance brokers from outside (e.g. Fireman’s Fund). Some of those insurers can compete favorably with State Farm and Allstate on premiums because their exposure in Alaska is so small, having fewer policies on the line.
The other question to ask is what kind of service you can expect in the event of a claim. This is where the larger companies tend to have an advantage, though you will only find out for sure after the ground starts shaking.
Among my customers, about half choose to add the earthquake premium (approximately 0.25% of sum insured or $60 per month on an average $300,000 home) to their hazard insurance of $120 per month on the same home. Earthquake insurance, therefore, adds about a 50% increase over basic insurance on your home for a benefit that only kicks in for a catastrophic event. This makes your insurance decision for earthquakes entirely personal.
Dear Dave: I was speaking to my realtor, who says she is Associate Broker for one of the local Real Estate offices here in Fairbanks. Then I saw a business card of someone else in her office, and he also claimed to be Associate Broker. Can a Real Estate office have 2 associate brokers?
Answer: A Real Estate office can have only one Broker, who is legally responsible for all of that office’s activities, but there can be an unlimited number of Associate Brokers.
When a person is licensed in the State of Alaska to practice real estate, the initial license is for a ‘Real Estate Salesperson’. After 2 years of practice, a licensee can study and qualify as a Broker, and be licensed as such.
A Broker’s license allows that person to run their own real estate practice. There are many Realtors who obtain this higher rank of qualification but choose to remain in an existing office. In such a case, they are call an ‘Associate Broker’ – that is, qualified to be Broker, but not ‘the Broker’ in that particular office.
