The Great Flood of 1927. Hurricane Camille in 1969. Then Hurricane Katrina in 2005. What could be next?
These three major natural disasters that hit Mississippi and caused considerable destruction and loss of property may pale in comparison to what could happen when another natural disaster strikes the northwestern part of Mississippi.
It’s not a matter of if but when the New Madrid Fault Zone, centered around New Madrid, Mo., strikes again. This 150-mile long seismic hotbed, which runs through Arkansas, Kentucky, Missouri and Tennessee, last sent the earth shaking in the Midwest in three major earthquakes in late 1811 and early 1812. One of those earthquakes even caused the Mississippi River to flow north for a time.
But times were a lot different in those days than they are now. In the path of the expected New Madrid earthquake are major population centers such as Memphis, Little Rock and St. Louis and points in between. Along with the population factor is the transportation arteries, which connect the nation from east to west along with bridges over the Mississippi River. And most importantly is the stretch of Mississippi River Main Line levee on both sides of the river from Missouri and Tennessee south to New Orleans.
With insurance liabilities and payouts from Katrina losses still fresh in the minds of residents, businesses and insurance companies who write policies in the state, the specter of an earthquake natural disaster may be too much for some insurance companies to consider.
As Mississippi Insurance Commissioner George Dale continues to deal with Katrina insurance issues and concerns, the New Madrid possibility has already reared its head.
“This is something I am concerned about,” said Dale. “I didn’t think there could be a natural disaster bigger than Hurricane Camille. Then came Katrina with its staggering destruction and loss of property. So if the New Madrid earthquake happens, we could be looking at losses in the northern part of the state that surpass Katrina.”
“The potential magnitude of a catastrophic New Madrid quake dictates that we approach the preparedness on a regional basis,” said W.R. Padgett, board chairman of the Central United States Earthquake Consortium. “No one state can possibly begin to address all the issues.”
“This is something my office is already looking into, and something which the state will have to look at if insurance companies decide to pull out from writing earthquake insurance policies,” said Dale.
“I think it will be a long time before we have an earthquake but the outcome will look like Katrina,” said Charles Gordon, president of Cooke Insurance Center Inc. with offices in Hernando and Sardis. “A large percentage of the individuals and businesses will be uninsured and not even remember it. There will need to be a big government bail out. We could prevent that outcome with a little planning now.”
At this time, the six largest insurance companies that write the majority of insurance policies in the state are reviewing earthquake coverage in light of Katrina and the eventuality of some earthquake activity from the New Madrid Fault Zone.
“Of the companies we deal with now, Allstate, Union Standard and State Auto will not cover earthquake at all,” said Gordon. “Safeco will cover the basic structure but not the brick or masonry. Farmers will only cover up to $250,000. Zurich, which only insures small business for us, will only cover it in special situations.
“Met Auto and Home is not taking any new business at all. Travelers is still covering earthquake for homes and only in special situations for commercial. I am afraid the situation will get worse when Allstate starts to remove the coverage in September. The rules we operate under may not be the same for all agents,” said Gordon.
Dale has “considerable concern” about the six largest insurance companies in the state not writing earthquake insurance or reducing what coverage may already be written.
“This would be devastating for Northwest Mississippi where damage could be considerable,” said Dale.
However, Allstate Insurance will begin a nationwide program beginning September 15 of “not renewing optional earthquake coverage on individual policies,” said Kate Hollcraft, spokeswoman for Allstate Insurance-Southern Region.
Allstate’s action is being taken to “really better manage our risk and be better prepared for catastrophes. We are trying to reduce our exposure to catastrophes in order to better take care of our existing customers,” said Hollcraft.
Customers will receive notification letters about the change in coverage starting September 15 as policies come up for renewal, she said.
Susan Lamey, public affairs specialist for State Farm Insurance in Mississippi, said when it comes to earthquake coverage, “we are doing business as usual.”
Lamey said that with just under 50,000 policies written by the company in the state, there “are some with some form of earthquake coverage.”
“We continue to evaluate the threat of catastrophic loss. We are continuing to evaluate particularly in these markets where there is a threat of catastrophic loss,” she said.
As for whether State Farm will continue to write earthquake insurance after September 1, Lamey said, “this is still under review.”
With at least one insurance company dropping writing earthquake insurance in the state, others could follow. With this knowledge in hand, Dale is already taking action to minimize or forestall such action.
“If companies start excluding earthquake insurance coverage, then we’re in trouble. I have already been on the phone with these companies talking to them and seeing what we can do to help out policy holders in the state,” said Dale.
“We can’t go around like Chicken Little and saying the sky is falling, but we do have to be prepared in case there is a major earthquake that hits our state,” he said.
“It would be very meaningful if people in the rest of the state understood the potential for an earthquake and the potential for damage in the Northwest Mississippi counties,” said Gordon.
With hearings set for August in the state on insurance issues, Gordon suggests that “we include this issue in those hearings by inviting the five largest insurance writers in the state to testify about their plans for earthquake and what they see as the potential loss.”
At issue is that most standard homeowner and tenant insurance policies do not cover losses that result from earth movement. However, in most places, one can obtain insurance protection by purchasing an earthquake endorsement to a standard homeowner policy.
Earthquake insurance is catastrophe insurance, which primarily covers major losses, said Hollcraft.
It is normally sold with deductibles equaling 10% to 25% of the structure’s policy limit.
An earthquake endorsement generally excludes damages or losses from floods and tidal waves — even when caused or compounded by an earthquake. However, loss caused by landslide, settlement, mudflow and the rising, sinking and contracting of earth may be covered if the damage resulted from an earthquake.
Lessons learned from the Katrina experience will help Dale and his staff address the New Madrid situation, in specific, and the greater issue of earthquake coverage in general.
Contact MBJ contributing writer David Lush at firstname.lastname@example.org.