Disaster Insurance: How Well Are You Covered?

By M.P. MCQUEEN

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Associated Press

The Northridge earthquake, 1994

Could it happen here?

This month's series of disasters in Japan—an earthquake, a tsunami and radiation leakage from nuclear-power plants—has increased the anxiety of Americans half a world away.

Aside from the terrifying prospect of mass casualties, many homeowners in the U.S. are asking their insurance agents if their standard policies would cover them for injuries or property damage in such an event.

The answer is, generally, no.

Ordinary homeowner insurance doesn't cover earthquakes or floods, including tsunamis. The main protections for these perils are publicly administered earthquake and flood programs—and the policies tend to be most expensive in the high-risk areas where homeowners most need them.

Nuclear-power-plant operators, by contrast, are required to accept financial liability for accidents or acts of sabotage, including for injuries, death and property damage. They buy insurance to cover that liability. But the coverage may not be sufficient to protect homeowners in a catastrophic event, some critics say.

Nuclear crises have been mercifully rare in the U.S., but floods and earthquakes aren't. Here is what you need to know about the various forms of coverage.

• Earthquakes. If you want to buy earthquake insurance—and you don't live in earthquake-prone California—some property insurers sell it as an extra in a standard homeowner's policy or separately. Deductibles range from 2% to 20% of the insured value of the home, says Robert Hartwig, president of the Insurance Information Institute, an industry-funded nonprofit. The price depends on the age and structure of the home and its proximity to a seismic fault.

In the Golden State, the California Earthquake Authority, or CEA, a privately funded, publicly administered program, provides earthquake coverage to state residents. Just 12% of California homes are covered by earthquake insurance, down from more than 30% in 1996—even though most of the population lives within 30 miles of a seismic fault, says Glenn Pomeroy, chief executive of the CEA.

The California legislature created the CEA in 1996 after most private insurance companies refused to write new earthquake policies following the Northridge quake of 1994. Insured property damages from Northridge totaled more than $15 billion, far exceeding the amount that insurers had collected in premiums, Mr. Pomeroy says.

CEA policies have deductibles of 10% or 15% of the insured value of the dwelling as listed on a companion homeowner policy, plus $5,000 for personal property and $1,500 for living expenses. The average annual premium for a $400,000 home is $800, but premiums are based on age, structural features and proximity to an active fault. They are sold by participating insurers, such as State Farm Insurance Cos. and Allstate Corp., but are issued by the CEA.

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Associated Press

Flooding in Wayne, N.J., 2011

• Floods. Participation rates in the National Flood Insurance Program, which is administered by the Federal Emergency Management Agency and provides the vast majority of flood policies in the U.S., also are fairly low: Only 10% of Americans had a flood policy in 2010, down from 17% in 2008, according to the insurance institute. The program was established by Congress in 1968 when private insurers said they were unable to provide affordable flood coverage.

Flood insurance covers water damage to homes from tsunamis, mudslides, rain and storm surges that affect at least two acres or two properties. Coverage for basements is limited. People who live in places that don't participate in federal flood-control projects or who live on certain barrier islands can be excluded.

The insurance costs an average of $570 a year, with limits of $250,000 on residential property and $500,000 for commercial properties, but premiums are far higher in high-risk zones. For more information on the program, go to FloodSmart.gov.

Some private insurers also sell excess-risk flood policies, and some high-end policies outside of high-risk areas include flood coverage. Sales of the insurance rose temporarily following Hurricane Katrina in 2005—the costliest natural disaster in the history of the U.S.—but have since leveled off.

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Associated Press

Three Mile Island, 1979

• Nuclear accidents. There are 104 commercial nuclear-power reactors in the U.S., according to the Nuclear Regulatory Commission, or NRC. Liability for accidents is spelled out by the Price-Anderson Act, enacted in 1957. It was invoked during Pennsylvania's Three Mile Island partial nuclear-core meltdown in 1979, which resulted in a release of radiation and the voluntary evacuation of thousands of residents. On March 23, the NRC said it would launch a review of nuclear-power-plant safety in the U.S.

Nuclear-power-plant owners in the U.S. buy liability insurance from a joint underwriting group, the American Nuclear Insurers in Glastonbury, Conn., which is funded by more than 20 U.S. insurance companies.

There is a limit of $375 million in available payouts for each reactor site, which was raised in 2010 from $300 million. If needed, a second tier of liability coverage of up to $117.5 million per operator would come from special assessments on all nuclear-power plant operators, for at total collective liability cap of $12.6 billion for the industry.