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Natural Hazards and Earth System Sciences An interactive open-access journal of the European Geosciences Union
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Discussion papers
https://doi.org/10.5194/nhess-2019-29
© Author(s) 2019. This work is distributed under
the Creative Commons Attribution 4.0 License.
https://doi.org/10.5194/nhess-2019-29
© Author(s) 2019. This work is distributed under
the Creative Commons Attribution 4.0 License.

Research article 08 Feb 2019

Research article | 08 Feb 2019

Review status
This discussion paper is a preprint. It is a manuscript under review for the journal Natural Hazards and Earth System Sciences (NHESS).

California earthquake insurance unpopularity: the issue is the price, not the risk perception

Adrien Pothon1,2, Philippe Gueguen1, Sylvain Buisine2, and Pierre-Yves Bard1 Adrien Pothon et al.
  • 1ISTerre, Université de Grenoble-Alpes/Université de Savoie Mont Blanc/CNRS/IRD/IFSTTAR, Grenoble, France
  • 2AXA Group Risk Management, Paris, France

Abstract. Despite California is a highly seismic prone region, most of homeowners are not covered against this risk. This study analyses the reasons for homeowners to purchase or not an insurance to cover earthquake losses, with application in California. A dedicated database is built from 18 different data sources about earthquake insurance, gathering data since 1921. A new model is developed to assess the take-up rate based on the homeowners’ risk awareness and the average annual insurance premium amount. Results suggest that only two extreme situations would lead all owners to cover their home with insurance: (1) a widespread belief that a devastating earthquake is imminent, or alternatively, (2) a massive decrease in the average annual premium amount by a factor exceeding 6 (from $980 to $160, USD 2015). Considering the low likelihood of each situation, we conclude from this study that new insurance solutions are necessary to fill the protection gap.

Adrien Pothon et al.
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Short summary
This paper investigates why earthquake insurance in California is so unpopular despite a significant risk. For that, homeowners’ behavior has been investigated based on the evolution of the earthquake insurance industry in California since its premises. This study shows that most of homeowners disregard earthquake insurance because the premium amount is too high and not because they underestimate the risk. We conclude that new insurance solutions must be designed to fill this protection gap.
This paper investigates why earthquake insurance in California is so unpopular despite a...
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