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January 18, 2007
How Do You Accurately Assess the Risks of an Earthquake? - the Owner’s Perspective.
I have written an article for HOAs and Boards that you can find on my website at called “Earthquake Insurance, To Buy or Not to Buy”. I wrote it in 1996 after the Northridge earthquake, when rates skyrocketed and coverage options dropped drastically, and have updated it since. It has garnered quite a bit of interest. I think it helps Boards in fulfilling their duties as fiduciaries for the Association, to determine the prudent thing to do. But truthfully, it seems to me that the risks are really quite impossible to accurately assess.
One can peruse risk analysis websites, read about geological predictions, do everything an insurance analyst can do with charts, graphs, historical data, etc. But living in California has risks, especially near the faults, and predicting the extent of the risk is just darn near impossible. How does it work? I have found an analogy. I was in Disney World recently with my daughter, son-in-law and two grandchildren, and experienced an eiphany. Riding the Kali-Rapids in Disney World … how does it compare?
As you move through the line at the Kali-Rapids ride, you can see the people coming down the rapids, raft by raft. It becomes clear that the various rafts hit the rapids in different ways, and people get all levels of wet. Since the rafts rotate unpredictably, it is impossible to determine what is a safe “seat”.
You know there is a very strong probability that you will get wet, the question is “How wet?” The excitement mounts as you get closer and closer to the gate. Right near getting on the ride, there is a Mickey Mouse character offering ponchos for sale at $7 a pop. This comes as a surprise and you only have a few moments to make a decision. Do you buy one? Here, at the moment of truth, you are offered a carrot and you have to make a quick decision. Do you purchase protection, or take your chances? 7 bucks seems like a lot of money for one short ride down the Rapids. However, a chance of staying at least partially dry has its appeal. Getting thoroughly soaked is not too appealing to me. So I fork over the seven dollars and take a poncho. I of course put myself in the position of risk, but appreciate this opportunity to get some protection.
My children on the other hand, and their children, are less willing to spend the money. Of course, it is a bigger investment for four than for one. And, they have back up clothes for the children. They forego the ponchos.
We all got wet, they much more than I. But they are young, and resilient, and survived being soaked. I was happy to be pretty much dry. I thought the poncho was a great investment.
I do not want to be too simplistic but it’s just about like that with earthquakes. It does not matter where you are sitting, if there is a big earthquake, you will probably be adversely affected. How badly is difficult to predict. But one thing is sure – if there is a devastating earthquake in California again, or should I say when there is one, those that have protection will be happy they do, and those that don’t will probably be sorry they don’t. Northridge was a lesson.
Read the articles on the website for more on earthquake insurance, and the whys and why nots. Visit http://www.californiacondoguru.com
Posted by Beth Grimm at January 18, 2007 10:26 PM