Seen in Insurance Journal:
Figures from the state Department of Insurance show that earthquake coverage was carried on fewer than 38 percent of the insurance policies for homes, mobile homes and farms last year.
That was down more than 5 percentage points from 2001. During that same time, the average cost of residential earthquake coverage in Missouri rose by 15 percent, according to the department’s figures.
In response, Gov. Matt Blunt created a task force to study the availability and affordability of earthquake insurance, especially near the New Madrid fault.
RiskProf offers up a theory for the cause—”the expectation of a Katrina-type-federal-bail-out (KTFBO)”.
The effect of potential KTFBOs (cat-fee-bows) on insurance markets will be difficult to measure and I am not suggesting that this is the only reason for the drop in Missouri earthquake coverage, but it should not go unexamined as a possible reason. If KTFBOs are real, there is nothing the state government can do short of mandatory coverage and we know how popular that option would be.
I can buy that as a contributing factor. I can also offer a few other theories:
- The article cites a 15% increase in quake rates, which RiskProf observes is in line with the rate of inflation. However, it’s worth noting that that’s a statewide average, and it leaves open the possibility of some rate shock in southeastern Missouri, as some insurers started looking at risk aggregation and 500- or 1000-year PML’s.
- The exposure to quake risk isn’t uniform across the state. The Office of Social and Economic Analysis at U. Missouri has some pretty maps documenting by-county population changes between 2000 and 2005. If you eyeball the charts and do a little hand-waving…I could see that less-quake prone parts of the state might be growing faster than counties closer to the New Madrid fault zone. If you figure that quake take-up rates are less in, say, St. Joe or KC than they are in New Madrid and Carruthersville…this could easily be part of the explanation.
- However, the possibility that really struck me is wondering if this is an artifact of the real estate boom. Granted, I’m not that familiar with Missouri’s real estate markets, but it’s not too difficult for me to imagine that in the first part of this decade, folks were more tempted to buy houses at the limit of affordability. Among those consumers, I could easily imagine decisions being made to shave off seemingly “unnecessary” coverage, to save a few bucks and perhaps to get the ratio of monthly housing expenses under a certain ratio.
If the Governor wishes to see EQ coverage take-up rates rise, perhaps he should commission some assistance from Doctor Iben Browning, whose work convinced me to take a day off from studying and go walk along a levee near New Madrid, Missouri on 2 December 1990. 
