Natural disasters — they’re hard to predict, devastating, and largely unpreventable. They’re just a fact of life, and San Francisco is no exception. With the recent season of wildfires still very much in progress, and the ever-present risk of another earthquake (the next “big one”) still permeating the Bay Area, anyone owning, or thinking of buying, a prized piece of San Francisco real estate needs to consider the implications of the kinds of natural devastation that California experiences on an all-too-regular basis.

Despite the risks, many people are without earthquake insurance in San Francisco. Wildfires, too, come with unique insurance complexities regarding coverage that many homeowners are not fully aware of. Let’s examine the situation a little more deeply to help San Francisco’s homeowners make more informed choices.

Homeowner’s Insurance and Wildfires

Broadly speaking, fire damage, and the resulting costs, would be covered under:

• Dwelling Coverage (which includes the residence, and associated structures, like a garage or deck)
• Personal Property Coverage (which covers possessions)
• Landscape Coverage (for the yard, plants, and so on)
• Additional Living Expenses Coverage (which would cover hotel stays, and other costs incurred during the rebuilding process)

Now, in most cases that would cover damage from wildfires, but there are two major issues. First, some parts of the city and surrounding area are now considered too “high-risk” to make insurance viable for any but the highest bidders. Fewer and fewer new plans are being approved, but premiums still jumped five-fold from 2010 to 2016.

There is a state-sponsored insurance program, FAIR, which provides some relief, but that doesn’t help the higher-risk areas much, despite the ongoing and increasing risk of fire damage throughout much of California.

The other problem is somewhat hazier. Are smoke and ash damages, from the wildfires, still “fire damage” if the house doesn’t actually get set ablaze? There’s no clear answer. Absent a clear definition, and without the policies in question explicitly providing a resolution path for the contingency, insurance providers have so far been inconsistent. Earlier, they were more lax, but lately, as the wildfires continue to rage, they have been less and less indulgent.

San Francisco Earthquake Insurance

The San Francisco Bay Area is prone to earthquakes. In California, there are about two thousand distinct fault lines, and the state is hit by a moderate earthquake (on the order of about magnitude 5.5) five or six times a year, on average. For many, minor quakes are an almost daily reality.

The risks can sometimes be severe. The US Geological Survey predicts another “big one”, on the order of the 1906 quake (estimated at about 7.9mag) in the Bay Area in the next 30 years, with about 68% confidence. The exact time is hard to in down with any certainty, but it’s a virtual certainty that it will hit eventually. When it does, the devastation is projected to be on par with the damage done by Hurricane Katrina.

So, just how many homes are protected with earthquake insurance in San Francisco?

Not many. Right now, only about 10% of San Francisco homeowners have earthquake insurance, and those that currently do are getting priced out. In 1994, the figure was more like 35% of homeowners.

Remember, the insurance premiums aren’t calculated based on the home’s market value, but on the estimated cost of the rebuild. Those practical costs are increasing faster even than the market rate for the home itself.

This isn’t a trivial problem. If a major quake should occur, the insurance gap to rebuild the city (the difference in cost between what insurance companies would be expected to cover and the total real cost) is upwards of $600 Billion.

On the other hand, there is a third option.

The Brace and Bolt Program

In many cases, homeowners in earthquake risk zones can receive up to $3000 in state-sponsored incentives towards upgrades and retrofits. Many San Francisco homeowners consider earthquake insurance an impractical use of money, and would rather allocate the funds they would have spent on premiums to quake-proofing the house itself.

Is Earthquake Insurance in San Francisco Right for Me?

Well, it’s hard to say, and there are good arguments on both sides. That answer will probably depend on a number of factors, like the projected insurance premiums, the kinds of upgrades that a San Francisco homeowner can afford (unlike ongoing premiums, those upgrades generally require a significant up-front investment), and the relative degree of risk.

It can be informative to check the history of other insurance claims for a given property, to help establish just how earthquake prone the area really is, but remember that that history is never a guarantee against the future.

For a more detailed answer on this, or on any other real estate question, give Danielle Lazier + Associates a call! Our team of San Francisco real estate experts are ready to help!