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favorably due to enhanced retrofitting and ability for the ability to sway with the seismic movement without being damaged.
EARTHQUAKE RETROFITTING AND SOIL TYPE
Buildings that have been seismically retrofitted or varying soil types can also make a difference in the underwriting process.
• Earthquake Retrofitting. Extra structural protection is a way to minimize or mitigate the damage to any building. This is especially important in older and soft-story buildings, as underwriters generally view them as less structurally sound.
• Soil Type. Are you on bedrock, clay, or soft soil (artificial landfill)? Earthquake severity and damage can vary based on the softness of soil and sediment. As seismic waves travel through the ground, they amplify as the soil gets softer and is more prone to liquefaction.
COVERAGES AND DEDUCTIBLES
If not thoroughly reviewed and negotiated, Earthquake Insurance policies can be restrictive in the level of coverage offered and can leave you paying higher deductibles with a false sense of security. Here are a few coverages that should always be in any Earthquake Insurance policy:
• Replacement Cost. Replacement costs allows a claim to be paid without any deductions for building depreciation. On the other hand, Actual Cash Value only compensates for the depreciated reconstruction value of a building.
• Building Foundations. Coverage for building foundations is often time excluded unless
the insurance agent or broker requests otherwise from the underwriter. Generally, underwriters can include this provision for free.
• Building Ordinance. This coverage pays for the increased cost of construction to adhere to current building codes when rebuilding (e.g., installing a fire sprinkler system).
• Earthquake Sprinkler Leakage. If an earthquake sets the fire sprinklers off, insurance companies oftentimes exclude the resulting water damage caused by the sprinklers discharging. Some insurers give policyholders the option of adding this onto a Commercial Package policy, which is often the most cost-effective way to purchase this type of coverage.
Earthquake deductibles are typically based upon percentages of the limits (typically 5%-25% of the limits offered) with a minimum flat dollar amount (e.g., 5%, minimum $25,000). There are two main ways underwriters offer deductibles today:
• Per Unit of Insurance. Each type of coverage (building, business interruption, etc.) has its own percentage deductible. This can be advantageous as the deductible incurred before insurance kicks in is typically lower.
• Per Policy. The percentage deductible is based on the Total Insurable Value (sum of Building, Business Personal Property, and Business Interruption), which means policyholders will pay a much higher deductible before the insurance policy begins to cover losses.
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CS-28 APRIL 2021 - APARTMENT MANAGEMENT MAGAZINE
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