Earthquake insurance & preparedness

3 Replies

Hey folks, I'm based on Salt Lake City (an active earthquake zone) and I'm hoping to get a bit of feedback on how homeowners and property investors in earthquake zones are managing the risk of earthquakes.

A few questions:

First, does anyone have recommendations for insurers that will provide earthquake coverage in Salt Lake City for older (50-100+ year old) brick homes?   (the key words being "older" and "brick"  --I've found insurers who will do it for newer non-brick homes, but not for old brick houses).

Second, does anyone have any stories, recommendations or feedback about preventative earthquake reinforcement of older homes?  (this is something I know nothing about, so any info would be appreciated--such as recommendations on engineers/contractors who do that type of work, what types of reinforcements people are doing, ballpark cost estimates or what people have paid, has anyone witnessed a reinforced older home survive an earthquake, etc., etc. ...any info would be appreciated).

Lastly, a more general question:  what (if anything) are folks in earthquake zones doing to protect their homes or property portfolios from earthquakes?  In casual conversations with homeowners and investors, I'm always surprised at how few people in Salt Lake City seem to have earthquake coverage. I realize that earthquake policies are very expensive, but if you're an investor who has a portfolio of multiple homes in an earthquake zone, and none of them are covered for earthquakes, presumably a major earthquake could bankrupt you; no?   ...I also haven't met many people who have done any type of preventative reinforcement to protect against earthquakes....  ....any stories people have about what they're doing to protect against earthquakes would be great...  also, if you're in an earthquake zone but NOT doing anything to protect against earthquakes, I'd be interested in hearing your rationale (e.g.; is it just too cost prohibitive, or is there some other reason?)

A bit of backstory: we had a small-ish earthquake here in SLC back in 2020.  ...a few months before that earthquake, a family in my neighborhood bought a STUNNING late 1800s brick home. I believe it was approximately 4,000 sq feet, and it was easily one of the nicest homes in the neighborhood. ...and given the SLC housing market, I'm sure it was a fairly pricey property to buy.  Tragically, when the earthquake hit, an enormous section of the front of the house collapsed, and the property was eventually condemned and razed. As far as I know, nobody was injured, but I can't imagine the nightmare it was for the new owners. Presumably, this house was their dream home, and it was condemned within months of their move-in  :(  . Also, given how hard it is to insure an old brick home, there's a decent chance that it wasn't covered for the earthquake (though that's just speculation on my part)... I'm guessing the property cost 800k-1 million to buy, which begs the question: what does an owner do if they owe 800k on a house (or millions on a portfolio of houses), and their property/properties are condemned by an earthquake, and they don't have any earthquake insurance? I'm guessing such a scenario could easily be enough to bankrupt a lot of homeowners or investors-- am I wrong?

Anyway, I look forward to hearing folks' thoughts and feedback on these topics. Thanks in advance!

I'm a SLC investor, and I've thought a lot about this. A finance friend of mine once told me that most (expensive) earthquake insurance policies don't make financial sense unless you have almost 70% equity in a house. I don't understand the mechanics behind that, but I'm interested to hear what other people think. 

Also, I know some people have been installing reinforced attachments connecting the roof to the house. Again, I don't know much about that, but I'm interested to see if we hear from any experts. 

@Eric Balken  Interesting; could you maybe ask your finance friend to elaborate on that and maybe provide some hypothetical scenarios with numbers?

From an investor's perspective, I feel like there could be some instances where an earthquake policy could still make sense on a rental property--even if one had minimal equity.

Let's say you have a rental house in SLC that you owe 400k on (and the house is only worth 415k, so you have minimal equity). However, the house is cashflowing, and the cashflow would be enough to pay for typical maintenance, plus a pricey earthquake policy (for now, let's put aside the fact that it's very difficult or impossible to buy a house in SLC that cashflows right out of the gate).  In this scenario, if you DON'T get an earthquake policy, you get a bit extra in cashflow, but if the house is destroyed by an earthquake, you owe 400k on a pile of rubble...for some smaller investors, I'm guessing that could be enough to bankrupt them (particularly if that scenario happened across numerous properties...if, for instance, you ended up owing 1.5-2 million on 3-5 properties that were all turned to rubble, I'm guessing that would be game over for most smaller mom & pop investors who tend to have 3-5 properties).  On the other hand, if you DO get an earthquake policy, your cashflow is a bit lower (but still sustainable), and you're protected against that disaster scenario (in theory, at least).

...so, in that example, it seems like an earthquake policy would make sense, even if you have minimal equity (I'm guessing most investors are willing to sacrifice a bit of cashflow if it means protecting against potential bankruptcy)...

Now, let's flip it around--let's say you only owe 100k on your rental that's worth 415k, so you've got solid equity.  Same as the prior scenario, let's say if you get the earthquake policy, the property still cashflows (just not quite as well)...if you don't get the earthquake policy, it cashflows a bit better, but you risk owing 100k on a pile of rubble after an earthquake--maybe not as devastating as owing 400k on a pile of rubble, but still a pretty bad situation... 

So, in either of those scenarios (low equity or high equity), it seems like an earthquake policy could make sense, particularly if the person didn't have the cash to stay afloat if an earthquake demolished their property/properties....

Would you agree that in either of those scenarios (low or high equity), it could make sense for an investor to consider an EQ policy?    ....or perhaps I'm missing a key issue? (if so, please let me know).

As for the seismic retrofitting of older homes, I'm no expert on the topic, but from the few articles I've read, the retrofits are often aimed at preventing the roof from collapsing and chimneys from falling--the goal is to give the occupants a better chance of survival/escape (which should obviously be the top priority). However, even with retrofits, the house could still suffer serious damage; from what I understand, even a retrofitted home could still be fairly likely to suffer damage so severe that the home would need to be condemned after a quake (again, I'm not an expert on this, that's just my understanding after reading a few articles).

From what I've read, the experts say there's about a 43% chance of a magnitude 7 or greater quake in/around SLC in the next 50 years (for context, a 7+ quake would be devastating; they say 80-85% of homes would have moderate to severe damage, with the older brick homes in areas like Sugarhouse/U of U/ Aves experiencing about 70-100% structure loss).  After reading up on some of the local news stories and resources on this topic, I'm more convinced than ever that these are issues local investors, homeowners and politicians will need to educate themselves on and take action on quickly...  Here are a few articles/resources on the topic I found very useful:

https://nichehomes.com/what-ev...

https://www.slc.gov/em/fix-the...

https://www.sltrib.com/news/20...

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Hi guys, just wanted to put out there that I own an insurance agency here in Highland Utah.

I have a couple different companies to write earthquake policies in. I’d be more then happy to run up a quote so you can see how it will effect your cash flow and if it is right for you.

Let me know if either of you are interested!