Hawaii’s earthquake losses, not earthquake policies, on the rise

November 5, 2006

Estimated damages from the two earthquakes that struck Hawaii on Oct. 15 have been rising. Yet the recent disaster has not spurred homeowners and businesses to purchase earthquake coverage, according the state’s Insurance Commissioner.

Two damaging earthquakes struck the northwest side of the island of Hawaii, also known as the Big Island, early in the morning on Oct. 15. The first temblor, according to the U.S. Geological Survey, reached a magnitude of 6.7 and was located 12.5 miles northeast of the Kona airport. Seven minutes later, a second earthquake, assigned a magnitude of 6.0, struck 27 miles north of the Kona airport. Although the two events occurred only seven minutes apart, the difference in depths meant they likely were independent quakes, officials said.

The shaking caused power generators to trip on Hawaii, Maui and Oahu counties. Damage was reported mostly on the west side of the island of Hawaii, but also occurred on Maui and Oahu. Some roads on the Big Island were forced to close because of mudslides, debris and boulders. Damage from the earthquakes has left some Big Island ranchers and aquaculture farmers without water. And it is still unclear how much destruction the quakes caused to the island’s ditch systems.

At least one stretch of road leading to a bridge near the earthquake’s epicenter collapsed, Civil Defense Spokesman Dave Curtis said. Maj. Gen. Robert Lee, Hawaii’s director of civil defense, said 1,173 homes on the Big Island were damaged, including 29 that now are considered uninhabitable.

While no fatalities were reported, preliminary damage estimates from the earthquake reached $73 million, and President George W. Bush declared the area a major disaster, ordering federal aid to help state and local recovery efforts. Yet county officials are placing damage estimates closer to $100 million as they continue their building inspections.

As of Oct. 24, the Hawaii County of Public Works had conducted 1,030 inspections of buildings damaged by the earthquakes.

Hawaii Insurance Commissioner J.P. Schmidt said, “the estimates of loss have been rising. Some of the larger losses deal with public infrastructure.” The initial damage tally included $43.5 million for schools, $7 million at Kawaihae harbor, $11.6 million to businesses, $8.3 million for roads and bridges and $2 million for water systems, according to the Hawaii County Civil Defense Agency, but losses are estimated to creep higher.

The U.S. Farm Service Agency counted 20 cases of major agricultural damage and 25 with minor damage at its latest accounting in late October.

Yet even with the damage, the Hawaii Insurance department reported little uptake on earthquake insurance. “The lenders don’t require it, and significant seismic events causing measurable damage are relatively few,” Schmidt said. “Earthquake insurance is available. In fact, just last year we brought in another company that provided earthquake, landslide and excess flood insurance, but the demand has been low.”

Schmidt said about 46 companies offer earthquake insurance in Hawaii. “The top writers are surplus lines, but again, very few policies are written,” he said.

The Hawaii state insurance office does not keep records on how many policyholders have earthquake coverage, but the office noted businesses and residents in the state spent about $4.4 million on earthquake insurance in 2005 compared to about $250 million in total homeowners policies.

Schmidt blamed the high cost of living, low frequency and severity, and the fact that lenders don’t require coverage as the reasons a small number of earthquake policies are purchased by Hawaii residents annually.

“Largely, the cause is the fact that it is not required. People look at the cost of purchasing it, the likelihood that there will be an event that would cause damage and the high cost of living that we have here in Hawaii, and ultimately there are other things that seem more important to put money into,” he said.

The cost of adding earthquake protection to a homeowners’ policy varies widely by property and by island, but coverage runs slightly less than hurricane insurance, according to the commissioner. Common homeowners’ policies usually cover burst gas lines, water damage and fires triggered by earthquakes, but not damage from shaking.

Some companies, including State Farm, don’t offer earthquake insurance on the Big Island because of the frequent seismic activity there.

Claire Wilkinson, spokeswoman for the New York-based Insurance Information Institute, said the recent earthquakes in Hawaii emphasize the need for insurance across the country. “From recent reports across the U.S., it’s estimated that only 10 to 15 percent of homeowners actually purchase earthquake coverage,” she said. “The risk is very real and not just focused on what are thought of as traditionally earthquake-prone areas.

“It is really important to make sure you have adequate earthquake coverage,” she continued. “It is a bit like flood coverage. Earthquakes can happen anywhere and anytime, and the need for coverage is critical. You are taking a huge risk if you don’t purchase earthquake insurance.”

However, property owners who did sign up for earthquake insurance may not get much coverage, according to some. Policies typically come with a deductible of between 5 percent and 10 percent of a home’s value, meaning a homeowner with a $600,000 house, a typical value in Hawaii, could be responsible for paying the first $60,000 in damages. That leaves many victims, including those without earthquake insurance, waiting — and hoping — that federal or state government will come through with some financial help.

Government officials, nevertheless, say victims shouldn’t hold their breath for federal financial aid, although they will publicize aid programs as they become available. Schmidt said his office has received several phone calls from property owners seeking help, but those inquiries are usually directed to aid agencies such as the Federal Emergency Management Agency (FEMA) and the Red Cross.

And in an ironic twist, some homeowners avoid seeking relief for the damages, out of fear their property may be condemned or that the government may require them to complete expensive repairs.

“In Kohala we know, because we’ve been there, that there is significant damage, yet the numbers of reported damage are low,” said Big Island Civil Defense Administrator Troy Kindred. “We’re concerned that some of the residents might feel that if they come in and report, we’re going to come in and say, ‘Hey, that house doesn’t meet the standard, you have to get out.'”

Older people in particular are concerned what could happen if they let officials know of the damage to their homes, said Amber Armstrong, a Kohala Middle School teacher and Kapaau resident.

“They don’t want to move. And there’s nowhere to move to anyway,” she said.

The intent, however, of officials isn’t to kick people out of their homes, Kindred said. “It’s just to make sure they’re safe.” he said.

After inspecting more than 1,000 structures, county inspectors found 62 homes and churches could not be occupied until major repairs are made.

The Red Cross has been keeping its own tally of damage across the island. It found 40 homes destroyed and 215 that had suffered major damage, according to Maria Lutz, director of disaster services with the Red Cross in Hawaii.

The Associated Press contributed to this article.

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