The recent Japanese earthquake may cost insurers as much as $35 billion dollars, making it the most expensive natural disaster in recorded history.
The Boston, MA-based disaster modeling company, AIR Worldwide, estimates the losses will end up between $15 billion and $35 billion.
The cost will increase if the damage spreads to the Tokyo and Chiba prefectures, which contain a higher concentration of insured properties.
And keep in mind that this figure does not include the costs of loss related to the ensuing tsunami, or the cost of payouts tied to life insurance policies.
Even if the damages land half way between the two estimates, this would be the second largest disaster ever, following the 2005 Hurricane Katrina natural disaster that devastated the New Orleans area of Louisiana.
While $35 billion is certainly a staggering estimate, it does not tell the whole story when it comes to all financial losses suffered as a result of the disaster. Insurers will only be on the hook for property damage in cases where coverage was actually in place.
As it turns out, AIR Worldwide estimates that earthquake insurance penetration in hard-hit Japan is pretty low (ranging from 14% to 17% nationwide).
Are You Adequately Covered for Earthquake Losses?
Insurance agents in the U.S. consistently struggle to sell earthquake insurance to their clients in areas where earthquakes are not believed to be prevalent enough to warrant spending the additional insurance premium dollars (i.e. outside of California).
But a recent earthquake in Arkansas has thousands of residents in surrounding states contacting their agent to inquire about their current coverage as it relates to property damage caused by earthquakes.
To be clear: The average homeowners insurance and renters insurance policy in the United States DOES NOT cover damage caused by earthquakes. You must specifically request this coverage when purchasing a new insurance policy or renewing existing coverage.
So be sure to contact your local independent insurance agent to determine if your current policy adequately covers you against property damage resulting from earthquakes.
How About Flood Insurance?
Another common misconception that insurance agents deal with on a daily basis is the client’s belief that their home is insured against flood losses when they purchase a homeowners insurance policy.
This could not be further from the truth. Flood insurance, for personal and commercial property, is only provided by the National Flood Insurance Program (NFIP), which was extended through September of 2011 by recent Congressional action.
However, you are able to purchase flood insurance coverage through insurance agents (and the insurance companies they represent), as they market the government-sponsored program.
Many people seem to think they do not need flood insurance coverage if they don’t live on the banks of a river or near another body of water, and many don’t understand exactly what is covered by a flood insurance policy, or are concerned about the cost of flood insurance and ignore it all together.
But it’s important to ensure you are covered in the case of a disaster, so be sure to review your existing insurance policies and/or speak with your insurance agent or insurance company.