This story is reprinted with permission from FC&S Legal, the industry's only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

A magnitude 7.0 earthquake along the Hayward fault under the San Francisco East Bay followed by 16 aftershocks ranging in magnitude from 5.0 to 6.4 could result in more than 1.1 million homes sustaining visible damage, with a smaller number expected to be functionally impaired.

Total damage to private property for the entire scenario is estimated to be about $170 billion, with only a small fraction of damages insured, according to a new report by CoreLogic.

Low purchase rate of earthquake insurance

In a statement, CoreLogic estimated insurance payments to property owners of approximately $30 billion, less than 20% of the overall damage, primarily due to the low purchase rate of earthquake insurance.

The $140 billion financing shortfall presents a real risk to effective regional recovery, in the company's opinion. It added that the potential for systemic impacts triggered by the lack of insurance was a particular concern as a significant portion of the property that would be damaged by the earthquake serves as collateral for property mortgages.

'Realistic portrayal'

According to Tom Larsen, principal for industry solutions at CoreLogic, the scenario “is not a prediction of events to come, but it is a realistic portrayal of a series of earthquakes that could credibly occur along the Hayward fault.”

CoreLogic's analysis, he added, “evaluates the interaction between the physical aftermath of the events, with earthquakes and aftershocks occurring over time, and the financial world of insurance policies. Assessing that interaction can help determine how such a catastrophic event, in conjunction with the low penetration rate of residential and commercial earthquake insurance, can have significant and long-lasting damage on the people and economy of the region.

“With a better understanding and a practical planning scenario for the effects of an earthquake, we can begin to rethink how we plan for and respond to these disasters and thus improve our ability to recover,” said Larsen.

Victoria Prussen Spears, Esq., (vspears@alm.com) is associate director of FC&S Legal, editor of the Insurance Coverage Law Report, and senior vice president at Meyerowitz Communications Inc.

Special Reports /

San Francisco earthquake could affect 1.1M homes, cause $170B in damage

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