Earthquake insurance: If it happened here would you be prepared?

The earthquake and subsequent tsunami that struck northern Japan on March 11 resulted in close to 12,000 confirmed dead, another 15,472 still missing and a total economic loss estimated at a staggering $300 billion by risk modeling agency RMS, only a fraction of which will be paid by private insurers.

Like with the U.S.’s West Coast, also highly susceptible to major earthquake and tsunami damage, few homeowners in Japan have earthquake insurance, according to risk modeling firms.

Although Japan is described by RMS as one of the most prepared countries in the world to handle these types of disasters, and 90 percent of its people purchase ample life insurance, RMS competitor AIR Worldwide says earthquake insurance penetration in the country is low, ranging between only 14 to 17 percent nationwide.

Japanese homeowners weren’t the only ones who weren’t prepared financially for the loss. Risk analysts say many Japanese companies cut or eliminated their earthquake coverage altogether to save costs.

“Economic losses are expected to be very high because of costly uninsured losses,” says Insurance Information Institute in a report on Earthquakes: Risk and Insurance Losses.

The institute notes that AIR Worldwide’s latest report puts insured losses in Japan at $20 billion to $30 billion, as a result of the ground-shaking and subsequent fire and tsunami. In Japan, earthquake coverage includes tsunamis, but is purchased on top of a fire policy. The estimate only included insured property and did not include damage from the nuclear reactors. The total loss figure cited by RMS included all damages and economic losses.

In comparison, 10 percent of Californians, about 20 percent of those living in Oregon and about 12 percent in the state of Washington have earthquake coverage.

In fact, tsunami’s have occurred in the United States. In 1964, a tsunami hit Crescent City, Calif. that was caused by an earthquake in Alaska that measured 9.2 on the Richter scale. It was reported that both these natural disasters resulted in $17 million in  property damage. The tsunami also affected coastal towns and cities in Oregon and Washington.

With the stakes so high, many wonder why more homeowners in these earthquake-prone areas aren’t insured, and whether both the U.S. and Japan could do more to become better prepared in the event of a future disaster.

A perfect storm

The devastation in Japan comes despite the country being described by RMS in a March 21 report as “one of the most seismically prepared countries in the world, with building codes designed to resist major earthquakes, exceptional emergency preparedness, a state-of-the-art tsunami warning system and well-coordinated fire and disaster management services.”