The powerful 6.4 and 7.1 magnitude earthquakes that rocked Southern California on July 4th and 5th have many business owners questioning whether they would be covered if their business was damaged during an earthquake. Unfortunately, business earthquake coverage isn’t included in your commercial property insurance or business owners policy – so if you aren’t paying for a specific earthquake insurance policy, then you probably aren’t protected for damages resulting from a seismic event.
That said, business earthquake insurance can be prohibitively expensive, and it’s not necessary for all companies. Here are some important considerations to evaluate before deciding whether this type of coverage is right for you.
What Does Business Earthquake Insurance Cover?
Business earthquake coverage is designed to help you rebuild, rebound, and recover after a devastating earthquake. Without it, you would be left with the financial burdens of repairing your building, replacing damaged inventory and equipment, making mortgage payments despite the loss of income, and, in the worst-case scenario, demolishing the structure completely.
Earthquake insurance can vary greatly, but here are some of the general coverages that are usually included:
- Damage to structures, including direct damage and indirect damage (like flooding caused by sprinkler leakage).
- Repair and/or replacement of business contents, including inventory, machinery, and equipment.
- Alternate location costs if you’re unable to conduct business while repairs are in progress.
- Loss of business income.
- Improvements or repairs required by local ordinance or law.
Who Needs Earthquake Insurance?
According to the U.S. Geological Survey (USGS), the United States averages about 20,000 earthquakes each year. Most of them are small, but since 1990, at least some earthquake damage has been reported in all 50 states. To help commercial and residential property owners decide whether they need earthquake insurance, the USGS provides a list of considerations, which includes: proximity to active earthquake faults; seismic history of the region; building construction; quality of workmanship; geologic structure of the earth beneath; value of the building and its contents; cost of the insurance; and restrictions on coverage.
Depending on your location, business earthquake coverage can be incredibly expensive, so if you’d be able to fund your own recovery, then you may not need earthquake insurance. However, if you have loans and/or a mortgage, your lender may require you to carry coverage.
What Else Do I Need to Know?
Your Deductible. Just like with health insurance, lower monthly premiums most often mean higher deductibles. So, it’s important to understand what you’d be required to pay out-of-pocket before your business earthquake coverage starts providing support.
Probable Maximum Loss (PML) Report. To get an accurate quote for your company’s risk, your insurance broker should get a PML report. The PML assessment provides a statistical estimate of the damage your property would likely experience based on certain risk tolerances.
Qualifying Requirements. Your property may need to undergo an inspection – and that inspection may result in required upgrades before you can qualify for business earthquake coverage. For example, you may need to have the structure bolted to its foundation or new braces installed for chimneys and/or walls.
Earthquake Improvements. If policy premiums and deductibles are too high to afford, you may be able to reduce the costs by making certain renovations and improvements designed to improve the structure’s resistance to earthquake damage. Your commercial insurance broker can advise you based on your specific circumstances.
We Can Help You Understand Your Business Earthquake Coverage Needs.
At Swarts, Manning & Associates, we provide a unique perspective on all of your commercial coverage options, and we help to determine which carrier best fits your business needs. We strive to find you the broadest coverage at the best available rate. Give us a call to get started: (833) 878-2820.
Each week, Swarts, Manning & Associates covers relevant topics for your business. Stay tuned to hear more discussions about managing your insurance and industry-specific tips.
