On Solid Ground: Why Earthquake Insurance Is a Smart Investment

Earthquakes are unpredictable — and more widespread than you may think. When they hit, the damage can be catastrophic to a property owner's buildings and equipment and can impede the business's ability to operate, causing financial distress.

While California, the Pacific Northwest and the New Madrid area (which includes parts of Missouri, Arkansas, Tennessee, Kentucky and Illinois) have the highest risk of earthquakes, they can occur anywhere in the country. According to a US Geological Survey analysis conducted in 2024, 75% of the country could experience a damaging earthquake.¹

For example, in West Texas in February 2025, a 5.0-magnitude earthquake was recorded, which El Paso residents felt about 150 miles from the epicenter. The earthquake tied for the sixth strongest in the state's history, according to the Texas Tribune.²

The US Geological Survey's new model indicates the possibility of more damaging earthquakes along the heavily populated central and northeastern Atlantic Coast corridor, including in Washington, DC, Philadelphia, New York and Boston.

RPS Area Executive Vice President Charlotte Stone and Area Senior Vice President Melissa Morales discuss several key issues regarding earthquake insurance to help agents understand risk levels, how the coverage works and how premiums are determined.

Earthquake Insurance for Commercial Property Owners

While a structure may withstand the initial quake, the aftermath — such as power outages, structural inspections and tenant relocation — can lead to extended closures and significant financial losses. Earthquake sprinkler leakage is a risk as well; a building may be unscathed by an earthquake but the shaking can activate indoor sprinklers, causing significant water damage to fixtures, machinery and inventory.

Business owners need to understand that standard Commercial Property coverage typically won't cover earthquake damage unless it's specifically included for an additional premium. A separate earthquake policy is needed to fill in the gaps. Morales also notes that while some Commercial Property policies provide limited coverage for earthquake sprinkler leakage, others exclude this coverage entirely.

Earthquake insurance is a smart risk management strategy for business owners and real estate investors to help pay for repairs to their property and other economic losses should there be damage. When seeking to provide clients with a comprehensive earthquake policy, you want to provide the following:

• Building and Contents coverage
• Business Interruption for loss of income to help cover operating expenses if the business closes temporarily due to earthquake damage
• Loss of Rents if tenants can't occupy the space following a quake
• Ordinance or Law coverage, which will help pay for repairing or rebuilding that meets updated building codes

Understanding Earthquake Deductibles

When evaluating policies, consider the deductible included. Earthquake policies typically include a percentage-based deductible of the building's replacement cost instead of a flat dollar amount. For example, a 5% to 20% deductible on the total insured value of the building and business personal contents will apply before coverage kicks in.

"There's a great deal of misunderstanding around how earthquake deductibles work," explains Stone. "It's important for clients to understand that the percentage deductible applies to the replacement cost value of the building, contents and any business interruption value, not to the amount of the loss or the policy limits. That distinction is critical, and the resulting deductible is often much higher than expected."

Construction Type and Insurability

The construction type and age of a building heavily influence the availability and pricing of earthquake insurance.

"Construction type, number of stories and the year built play a major role in determining how vulnerable a building is to earthquake damage," says Stone.

"Buildings made of unreinforced masonry, concrete block or concrete tilt-up construction tend to perform poorly in earthquakes and suffer greater damage. Because of this, they also carry higher premiums. Conversely, buildings with earthquake-resistant design elements may receive more favorable rates."

Building Code Requirements

"States with frequent seismic activity, such as California, have enacted robust building codes to new construction and upgrades to existing buildings," says Morales. "However, not all states have mandatory earthquake building codes, making seismic activity even more damaging when it occurs in those states."

In a state with strict codes, a business property may have to undergo an inspection and upgrades before qualifying for earthquake insurance. For example, before the building can be insured against earthquakes, the structure may have to be bolted to its foundation. The insured may also have to brace chimneys and walls and make other improvements. That said, while earthquake upgrades like these are prudent considerations, they don't preclude being able to find coverage.

"Some Earthquake insurers will issue a policy and then inspect during the policy term to confirm the age, construction and other details of the building," says Morales. "If a property does not have Earthquake upgrades, there are specialty Earthquake markets that can still provide coverage options. There are also specialty markets who provide protection for pre-1990 buildings, concrete and masonry construction, tuck-under structures and buildings exposed to soft soils."

Stone adds, "In California, code requirements have significantly changed since the 1994 Northridge earthquake in the San Fernando Valley. New and more stringent design requirements have been imposed, use of better materials and techniques are required, sometimes leading to higher costs and stricter underwriting standards. Code upgrades may be required after a loss occurs."

Review whether the policy includes coverage for aftershocks and how it handles multiple seismic events over a short period. Some policies treat these as a single event while others don't, which can affect how much a business owner has to pay out of pocket for damages.

"Policies use the term 'occurrence' to define the period of time that carriers consider seismic activity to be part of a single event," Stone explained. "Depending on the policy wording, the definition of occurrence can be 72 hours or 168 hours. That time frame matters, because any aftershocks outside of it are considered a new event and subject to a separate deductible."

Catastrophe Modeling

Catastrophe (CAT) modeling is central to how insurers price Earthquake coverage and decide how much capacity to allocate.

"Carriers rely on CAT models to determine the impact of natural and human-made earthquakes. This is how much and what risks they are willing to write," says Stone. "These models are based on scientific data and take into consideration historical seismic events and other factors such as soil conditions."

Soil composition, in particular, plays a key role.

"Buildings on soil types prone to liquefaction — where the ground temporarily loses its ability to support weight — can face significantly higher damage and also higher pricing," Stone notes.

"The accuracy of the data used for the earthquake modeling — such as building's address, construction type, replacement cost value and other building details — is crucial. Inaccurate or outdated information can distort the risk profile and result in inaccurate model results, underinsurance and improper premiums."