A devastating earthquake — 7.0 on the Richter scale or greater — has 5 to 9 percent chance of hitting the New Madrid Seismic Zone in the next 15 years, according to the Center for Earthquake Research and Information at the University of Memphis. The New Madrid Seismic Zone includes parts of Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri, and Tennessee.

Experts predict an earthquake of that magnitude will do at least $6 billion in damage, and Jim Mooney, president of the Inland Marine Underwriters Association, an industry trade group that advises insurance companies, says, "Just about any severe earthquake would be a total disaster."

Region is woefully unprepared

"There aren't that many earthquake-resistant structures [in the zone]," says Mooney. Ron Padgett, director of Kentucky's Division of Emergency Management, confirms that there are not enough structures in his state that meet earthquake-safety standards, which presents a looming disaster for homeowners and businesses. In addition, "because of the soil characteristics of [western Kentucky], a mid-winter earthquake would be significant in terms of disabling roadways, railways, pipelines, and water transport," he says.

"We're not as ready as we could be," says Jim Wilkinson, mitigation planner at the Central United State Earthquake Consortium, a group that advocates and implements earthquake-awareness and risk-mitigation programs in the New Madrid area. "It's unfortunate we live in a crisis-driven society and we don't do anything until it happens."

The study also concludes that over 270,000 people would be forced from their residences by quake damage and every public utility system — electric, gas, water, and sewer — would be unavailable after the quake.

Padgett tells Insure.com that not enough buildings in Kentucky meet earthquake-resistance standards.

Damages could run upwards of $80 billion, a sum that could devastate the insurance industry.

A 1998 study conducted by the Insurance Information Institute (III) concludes that "insured losses could reach $60 billion in part because homeowners and businesses have failed to take steps to mitigate potential earthquake damage." However, the study says that if a substantial quake were to shake a major population center, damages could run upwards of $80 billion, "a sum that could devastate the insurance industry."

Insurance companies ducking for cover

Most insurance companies writing earthquake insurance in the New Madrid Zone have either increased the deductibles on policies or stopped writing policies altogether. The III study also shows that deductibles of a whopping 15 percent of the policyholder's policy "are common in the highest seismic zones of the [New Madrid] area." In Missouri, coverage for commercial brick building has shot up 395 percent from 1997 rates.

State Farm Insurance Co., the largest home insurer in the nation, says policyholders can choose to pay between 2 and 10 percent of the value of their policy as a deductible. So, if you insure your home for $150,000 and it's damaged in an earthquake, you're responsible for as much as the first $15,000 worth of damage. State Farm also offers policyholders a flat deductible.

If policyholders opt for a lower deductible, their premiums will be higher. State Farm spokesperson Phil Supple would not say how much the company charges for its quake insurance.

State Farm stopped writing new earthquake policies in 1996 in eight Tennessee counties: Crockett, Dyer, Lake, Obion, Haywood, Lauderdale, Shelby, and Tipton. The Memphis metro area comprises much of Shelby County and Memphis is one of the cities that would suffer from a New Madrid quake.

Supple tells Insure.com that State Farm stopped writing new policies in those counties because it would not have been able to reasonably pay the claims from a quake. "We wouldn't be serving our policyholders in other areas. Say there was a stove fire in eastern Tennessee. We can't leave those people unprotected because we didn't have enough money in our reserves [because of earthquake claims]," he says.

Allstate Insurance Co. has also raised its deductible amounts and has stopped writing new policies that cover earthquake damage in some parts of Missouri.

Farmers Insurance Co. pulled out of Tennessee altogether in 1996, and does not sell quake insurance in Mississippi or Kentucky. The company is currently writing new earthquake policies in all of Indiana and Missouri, and the minimum deductible for those two states is 10 percent of the policy's value.

Farmers has also declared a moratorium on new policies in Arkansas and southern Illinois. However, customers who have existing policies in Arkansas and Illinois can renew.