New Madrid fault earthquake insurance market at risk of collapse, state officials say

As Southern California dealt with the effects of last week’s earthquakes, Missouri officials expressed concern about the potential costs of a tremor in the southeastern part of this state.

The Missouri Department of Insurance, Financial Institutions and Professional Registration issued a report Monday suggesting the earthquake insurance market along the New Madrid fault in southeast Missouri is on the verge of collapsing, with coverage in that region at slightly less than 14%.

The earthquake insurance market in the area has contracted over the last two decades, according to the state insurance department, with many insurers abandoning the market entirely and others refusing to issue new policies. Even among those willing to issue policies, underwriting standards make some types of dwellings ineligible for coverage, according to the report.

As the rate of residences with earthquake insurance has cratered, the price for purchasing insurance has surged. In some counties, insurance rates have risen by 500% in the past 15 years, according to the report.

“We are very concerned about the state of our earthquake insurance market in Missouri,” Chlora Lindley-Myers, director of the state insurance department, said in a release.

Missouri has the third-largest earthquake insurance market in the country behind California and Washington, according to the report.

That’s due largely to the New Madrid fault area, which experienced a series of 7.0 to 7.5 magnitude earthquakes in the early 1800s.

If another earthquake of that magnitude occurred in the region, there would be about $120 billion in insured losses, according to an estimate from risk modeling firm AIR Worldwide. A major earthquake along the New Madrid fault would generate economic losses of about $300 billion, according to projections from the Mid-American Earthquake Center at the University of Illinois and the Federal Emergency Management Agency.

State officials highlighted several more concerns about Missouri’s earthquake insurance market:

  • Premiums in the six county-area increased by nearly 700% between 2000 and 2018.
  • In 2000, premiums along the New Madrid fault were 64% higher than in the lowest-risk counties in Missouri. By 2018, that difference increased to 334%.
  • In the New Madrid fault area, only one insurer offers a deductible that is less than 10% of the insured value of the residence, and more than 27% of the market requires a deductible of 15% or higher.

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