Insured Losses from Seattle Earthquake Could Reach $1 Billion

The insurance industry could pay up to $1 billion in claims to people whose property was damaged by the earthquake that struck Washington State last week, according to the Insurance Information Institute.

The I.I.I. noted that it is difficult to assess losses immediately after an earthquake as much of the damage only emerges after closer inspection. The preliminary figure was based on an estimate prepared by Applied Insurance Research of Boston, Mass.

AIR uses sophisticated computer-modeling techniques to estimate insured losses from catastrophes. The bulk of the damage is in the Olympia area, near the epicenter of the magnitude 6.8 earthquake. Claims are likely to involve damaged roofs, cracked walls, foundations and contents, and damage to automobiles, said the I.I.I.

“Structural damage will generally be confined to older, unreinforced masonry buildings and to isolated areas of ground failure,” said Dr. Ahmet Yakut, structural engineer and member of AIR’s post disaster survey team.

Standard homeowners and renters policies do not cover damage from the earthquake in Washington State without supplemental coverage.

Earthquake damage to automobiles is protected under the comprehensive portion of an auto insurance policy. Approximately 12 percent of homeowners in Washington State carry supplemental earthquake coverage and those policies usually carry a 10 to 25 percent deductible.

“The insurance industry has the necessary financial resources to pay these claims,” said Dr. Robert Hartwig, vice president and economist for the I.I.I. “Company adjusters are already on the scene, working with policyholders to expedite settlement of their claims.”

Hartwig added that the financial impact on insurers will be far less than the $2-4 billion in economic losses estimated for the state. The earthquake that struck Washington last week is the largest to hit the area since 1949. The April 13, 1949 earthquake resulted in eight deaths and cost more than $25 million in damages ($184 million in today’s dollars).

The most recent earthquake to hit Washington State occurred March 25, 1993, measuring 5.6 on the Richter Scale. Since 1900, earthquakes have occurred in 39 states and have caused damage in all 50. About 5,000 quakes can be felt each year.

The Northridge, California earthquake of 1994 cost more than $13 billion in insured losses. One of the worst catastrophes in U.S. history, the San Francisco Earthquake and fire of 1906, caused direct quakes losses of about $24 million, as well as fire losses of about $500 million ($9 billion in today’s dollars).

Official insurance property loss estimates will be available from the Property Claim Services in the weeks to come.