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Jack Knox: Seismic shift in quake insurance might shock you

When the insurance company nudged up the deductible on Dave Wade’s earthquake policy this spring, the Courtenay man didn’t think it was a big deal.
Alaska Quake-2_2.jpg
A tsunami caused heavy damage in the Port Alberni area after a 9.2-magnitude earthquake in Alaska on March 28, 1964.

When the insurance company nudged up the deductible on Dave Wade’s earthquake policy this spring, the Courtenay man didn’t think it was a big deal.

He wasn’t thrilled to see the deductible rise to 15 per cent from 10, but neither was it the end of the world.

“I’m thinking that if we are involved in a quake, and there is $100,000 damage to our home, I’m on the hook for the first $15,000 and the insurance will pick up the additional $85,000 in damage.”

Wrong. He would have to pay the whole shot himself — and you could well be in the same boat.

What Wade learned was that his deductible isn’t based on the amount of damage, but the size of the policy. That’s standard for earthquake insurance.

In Wade’s case, his home is insured for up to $457,000 and its contents for $365,600, for a total of $822,600.

Fifteen per cent of that is $123,390. That’s his deductible, the amount of damage he must cover before his policy pays out. That’s the case no matter whether the earthquake cracks the ceiling or flattens the house.

“Maybe some people are aware of this, maybe not, but when the big one hits and we all line up at the insurance companies for our money, there are going to be a lot of shocked people,” he says.

Certainly Wade’s friends and neighbours were startled to find out that their policies had the same condition. Some homeowners don’t even realize that their standard home insurance doesn’t cover earthquakes at all.

It was a couple of years ago that earthquake policies went through a seismic shift, largely as a result of big payouts following major catastrophes around the globe.

First, reinsurance companies — those that provide coverage to insurance companies wanting to limit their own exposure — adopted new earthquake modelling that drew attention to high-risk Victoria and Vancouver Island. So the cost of reinsurance went up, says Victoria insurance industry veteran Eric Hartley, the former owner of Bill Hartley Insurance Services.

At the same time, events such as the 2011 earthquake that devastated Christchurch, New Zealand — a city that looked a lot like Victoria — prompted B.C. insurance regulators to stiffen the requirement that insurance companies buy enough reinsurance to cover all losses if the Big One hits.

Combine those factors, and some companies are losing money selling earthquake policies, as the amount they collect in premiums is less than they pay for reinsurance. “No new insurance companies want to get into the market,” Hartley says.

Hartley says some homeowners have tried to deal with rising premiums by cutting the value of their policies — which, as Wade discovered, has the effect of lowering the deductible. “We have people choosing to insure their home but not their contents, or half their contents,” Hartley said.

Pricey as it might be, and as high as the deductible might be, most local homeowners do buy earthquake insurance because, well, look at Christchurch. And note the 6.1 shaker that rattled Haida Gwaii on Friday.

Still, most homeowners could do a better job of knowing the details of their policies, whether for earthquake coverage or standard house insurance. It might be in fine print, but it’s all there.

 

 

The Insurance Bureau of Canada suggests asking a dozen questions when buying or renewing home insurance:

• What does the policy cover?

• Is there a specific kind of insurance for the type of home I live in?

• Are there certain risks to my home for which I can’t buy insurance?

• Is optional coverage available for perils like earthquake, flood or sewer backup that are not normally included in my homeowner’s policy?

• What things could happen to my property that won’t be covered unless I make special arrangements?

• What items might require additional insurance?

• What is a deductible and how does it affect the price of my home insurance?

• Am I entitled to any discounts?

• What is the difference between replacement cost and actual cash value?

• Is my home business covered by my home insurance policy?

• Should I make a claim for every loss?

• What kind of liability coverage do I have? How much do I need?