An analysis of the California earthquake insurance market since its early stages

Despite California being a highly seismic prone region, around 85% of people are not covered against this risk. This situation results from more than 100 years of evolution since the first earthquake insurance cover after the 1906 San Francisco earthquake. To understand this evolution, two analyses have been performed: the first one at the market level and the second one at the insured people level.

At the market level, as many variables as the premium amount, the risk monitoring, the funding sources of prevention plans, the insurance company’s solvency and the attractiveness of earthquake insurance solutions, have been investigated. By cross-analysing data collected and analysing the evolution with time, three different phases have been identified in the earthquake insurance market history.

At insured people level, a database is built from 18 different data sources about earthquake insurance, gathering data since 1921. Next, a new model is developed to assess the rate of homeowners insured against this risk, according to their risk awareness and the average annual insurance premium amount.

These two analyses are finally used to investigate in which extent the California earthquake insurance market could reach again 40% of people insured, like in 1993 and 1996. Even if results show that a widespread belief that a devastating earthquake is imminent could bring such a situation, only a new earthquake insurance model will allow to achieve this goal in a sustainable way. In that respect, the efficiency of two current initiatives to bring more people to get an earthquake insurance: "Earthquake Brace and Bolt" and "JumpStart Recovery", is assessed at the light of the analyses performed previously in this paper.