PEYTON SMITH: Earthquake damage, I’m covered for that right?

Saturday, May 2, was just another Saturday in Mississippi. People were enjoying the one of the biggest sporting days of the year, with Kentucky Derby, college baseball and of course the “biggest fight in history” between Manny Pacquiao and Floyd Mayweather that night. About 7:45 that night I was at friend’s house and somebody said that there had been an earthquake in Madison. Most people thought it was a joke because nothing was felt in Jackson and nobody associates earthquakes with Mississippi. Social media immediately went into frenzy with people talking about the earthquake.  It turns out that there were actually two earthquakes that night and some people also felt the aftershock after the earthquakes. I started texting my friends and family that live in Madison to make sure that everybody was ok and to find out more information. I even got text messages from some of my clients asking whether or not they had earthquake coverage on their home or commercial policy. Most people assume that they have coverage for this type of risk, but after the earthquake a lot of people learned that earthquake damage is not covered on their regular policy.

Generally people do not think they need earthquake insurance if they live in Mississippi. According to the Mississippi Department of Environmental Quality’s April 2014 Fact Sheet, there have been 28 earthquakes that were strong enough to be felt from the beginning of the 20th century until April of 2014. According to that same report the largest earthquake that Mississippi has ever felt was on Dec. 16, 1931, when an earthquake that measured a magnitude 4.7 occurred in the Batesville-Charleston area. That report also states that this earthquake was “felt over 65,000 square miles in Mississippi, Alabama, Arkansas, Tennessee and Missouri.  According to the United States Geological Survey, 90 percent of Americans live in an area that experiences earthquakes.

On May 2, the first earthquake measured a magnitude 3.2 and was centered by Canton. The second earthquake measured in at 3.0 and was centered 5 miles south of Canton. Even though by national standards this is not considered a large earthquake, if you don’t have earthquake coverage it can certainly scare you enough to look into adding it to your policy. An earthquake does not have to be that large to cause damage to property.

The rumbling of an earthquake can shake buildings, cause items in the property to break and damage pipes among other potential damage. It is very important when getting a quote for earthquake coverage that you make sure and find out the specifics of everything. Some companies require that the exterior construction of a building not be above a certain percentage of brick or stone. Other companies have age restrictions and won’t write an earthquake policy on a building that was built before a certain year. One of the biggest items to pay attention to when getting an earthquake quote is the deductible. Unlike a typical property policy where the deductible is a set amount, an earthquake deductible is typically percentage of the dwelling coverage for the building. For example a lot of homeowner policies have a deductible of 15 percent of the dwelling. So if a house has dwelling coverage for $300,000 the deductible would be $45,000 even though the rest of the policy may have a $1,000 deductible. $45,000 for a deductible seems like a lot, but it is not very expensive when you compare that with how much it could cost to rebuild and furnish your home if you don’t have earthquake coverage and have to pay out of pocket.
With commercial insurance, there are a lot more exposures to worry about than just your home and the personal contents in it. In addition to the building and the contents in it, you have to worry about being able to function as a business after the earthquake. An earthquake could cause enough damage that could keep you from running your business. If you aren’t able to operate your business then you have to deal with a possible loss of income and also having to pay for any needed repairs out of pocket.

There are two ways to get earthquake coverage. The first is to have an endorsement added to your policy and the second is to purchase a monoline or stand alone earthquake policy. However, some companies will not offer coverage in certain counties.
Earthquake coverage is something that a lot of people don’t think is necessary or is a waste of money, but these same people will be the ones possibly  calling their insurance company scrambling trying to get coverage when it’s too late.

Peyton Smith  is a Risk Advisor for SouthGroup Insurance Services and can be reached at 601-326-5312 or peyton.smith@southgroup.net