When the earth shakes, it gets our attention. With respect to earthquake insurance, an Oklahoma insurance department spokesperson recently told Reuters that take-up rates in the state grew after a magnitude 5.6 quake struck in 2011, from 4% before the temblor struck to as much as 18% at present.

But the reverse is also true: When an area at risk for earthquakes does not experience one for an extended period of time, this risk falls off the radar for most people—and even public officials. Residents in California would all likely say they want to be protected against earthquakes, but the take-up rate among personal-lines consumers is dismally low at around 10%.

For commercial lines insurance, a business will purchase earthquake coverage dependent on a company's risk tolerance, which varies depending on its customers and the requirements set by the company's board, says John Preli, earthquake and terrorism underwriting manager for FM Global.

Despite a low insurance take-up rate in the state, California leads the way in the U.S. for preparedness in other areas. “California has highly developed earthquake building codes,” says Harold Magistrale, senior lead research specialist at FM Global, who is the technical team leader for all of the company's geological sciences research.

New buildings, he says, have to be built to modern earthquake standards—ensuring they either have flexibility or that some part of the building can absorb earthquake energy without falling down. Even many older buildings in California are retrofitted to be earthquake resistant, which involves tying together all structural elements: walls to foundation; roof and floor to walls.

Magistrale and Preli both note, however, that even structures built to code are designed with the idea of saving lives; not necessarily limiting property damage. Any building, they say, may not be available to use after a quake.

With the success during earthquakes by structures built to code in California and elsewhere, it would seem to make sense for all areas at risk to adopt and enforce similar codes. But that is not the case, and as the saying goes, “Out of sight, out of mind.”

Magistrale points out that the best-prepared areas are, unsurprisingly, those that have experienced earthquakes in the recent past and have had time to absorb lessons and put those lessons to practical use. He cites California and Japan as two examples.

But risks are present elsewhere. Areas along the New Madrid fault line do not take building codes very seriously, Magistrale says. Studying faults in such an area that spans many states, which have their own building codes, is more difficult than studying the San Andreas fault line.

Special Reports /

Building Codes Work, but Earthquake Preparedness Remains an Issue

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