Last Updated: 4/16/2025

According to the United States Geological Survey (USGS), 42 states are at risk of incurring damage from an earthquake. However, a poll conducted by the Insurance Information Institute indicates that only 11% of American homeowners had earthquake insurance. 

The most active seismic areas in the U.S. are along the West Coast plate boundaries of California, the Pacific Northwest and Alaska. According to data collected by Aon, California has experienced 6 of the top 10 costliest earthquakes in U.S. history and yet only 10% of its residents have earthquake insurance. Similarly, only 11.3% of Washington's residents were covered in 2017. \. Most people think of large magnitude earthquakes when contemplating earthquake risk, however, earthquakes of smaller magnitude can cause significant damage. According to a study by the USGS, the New Madrid Seismic Zone (NMSZ) has a 7 to 10 percent chance of experiencing a 7.5 magnitude or greater earthquake over the next 50 years. During the same timeframe, the probability of a magnitude 6 or higher earthquake is 25 to 40 percent. Despite the risk, a report produced by the Missouri Department of Insurance shows a 49% decrease in earthquake coverage for MO residents in the New Madrid region, moving from 60.2% in 2000 to 11.4% in 2021. 

Overview: There are several key reasons why people do not obtain earthquake insurance. People may not be aware that standard homeowner’s coverage does not include coverage for earthquake. The cost of coverage may be prohibitive in high-risk areas and coverage may be limited. Earthquake insurance generally includes a percentage deductible, ranging from 2% to 20% of the total insured property value. The higher deductible amount shifts more of the risk onto the insured. Those with the highest perceived risk are also more likely to purchase the coverage—a phenomenon called “adverse selection.” Moreover, people may be unaware of their risk if a major loss event has not taken place in their region for an extended period of time or they may be overly reliant on federal assistance following a catastrophic event.

 For this reason, the NAIC produced the Consumer’s Guide to Purchasing Earthquake Insurance (PDF). The guide explains earthquake insurance, including information on how to obtain coverage and file claims. Earthquake coverage is sold primarily through admitted direct and surplus lines insurers. While it is usually offered as an endorsement to a homeowners or businessowners policy, it can also be sold as a stand-alone policy. However, the California Earthquake Authority, a publicly managed, mostly privately funded entity, sells earthquake insurance in California through participating insurance companies.

The consumer guide also defines common earthquake coverages and exclusions. For example, earthquake insurance typically only covers direct damage to the property resulting from the shaking of an earthquake. Indirect damage, such as fire and water damage from burst gas and water pipes is covered under a homeowner’s policy. Damage to vehicles would be covered under an auto policy. Earthquake coverage is usually subjected to two separate deductibles, typically 10-15 percent of the cost of rebuilding the home and the home’s contents.

Earthquake insurance is important because it decreases the post-earthquake loss burden on individuals, businesses and society in general. Insurance serves as an important tool in transferring the risk of earthquake damage and funding recovery efforts. Its function as a pre-disaster funding tool limits the economic impact of post-disaster recovery to individuals, businesses and government. 

The National Earthquake Hazards Reduction Program (NEHRP) also leads federal efforts to reduce destruction due to earthquakes by partnering with state and local governments, universities, research centers, professional societies and trade associations to develop research and risk reduction methodologies. In September of 2024 FEMA produced “Homebuilders’ Guide to Earthquake-resistant Design and Construction”  highlighting the importance of seismic building design in minimizing the resulting risk of damage, injury, and disruption. 

 In 2020, NAIC’s Journal of Insurance Regulation published The Earthquake Insurance Protection Gap: A Tale of Two Countries. The article analyzed why market penetration of earthquake insurance for personal properties is higher in the Lower Mainland of British Columbia (about 60%) versus western Washington state (about 14%), even though both places face similar and significant earthquake risk. The authors offer policy recommendations regarding barriers and considerations for improving market penetration of earthquake insurance.

The NAIC Catastrophe Insurance (C) Working Group under the Property and Casualty Insurance (C) Committee serves as a forum for discussing issues and solutions related to catastrophic events. They are currently drafting an update to a document regarding catastrophe modeling. In 2018, the USGS One-Year Seismic Hazard Forecast prompted catastrophe vendors to update their models. These model updates allow insurers a better understanding of induced seismic impact to property. Induced earthquakes have been linked to known human activities that are regulated at the state and national levels. For more information and research regarding induced earthquakes, visit usgs.gov.

In 2013, in accordance with Solvency II, the Property and Casualty Risk-Based Capital (E) Working Group adopted a change to the RBC formula to include the 1 in 100 modeled loss for earthquake, net of reinsurance.