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Californians are in deep doo-doo

California is home to about two-thirds of our nation's earthquake risk, with 2,000 known fault lines throughout the state producing approximately 37,000 earthquakes a year, averaging 102 per day, according to the California Earthquake Authority (CEA). The CEA is a nonprofit organization that provides residential earthquake insurance and encourages Californians to reduce their risk of earthquake loss.

According to a 2008 study by the Uniform California Earthquake Rupture Forecast (UCERF), there's more than a 99 percent probability that Californians will experience one or more magnitude 6.7 or larger earthquakes in the next 30 years, potentially capable of causing extensive damage and loss of life.

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It's scary then that only 11.3 percent of homeowners in California have earthquake insurance and just 6.67 percent of businesses carry coverage, says Pete Moraga, a spokesperson for the Insurance Information Network of California.

Blissfully unaware

Californians appear determined to remain unprepared for the eventual "Big One." So why is that?

It depends on who you talk to, says Moraga. "One reason is that it's been a pretty long time since we've seen a major earthquake in California that has hit close to an urban area." The last was the 6.7 magnitude Northridge earthquake in 1994, hitting Reseda, a Los Angeles neighborhood.

Californians' lack of earthquake insuranceWhen you haven't had an earthquake hit an urban area in a long time, people tend to forget about the scope of devastation and the problems that occur afterwards.

"Some people will push away the facts and either ignore them, or rationalize them," says Steve Orma, a San Francisco-based clinical psychiatrist. "They might tell themselves, 'It won't happen to me,' or 'God will protect me.' Or [they] hold a fatalist view of 'Whatever happens, happens -- I have no control over it.' They might also believe that even if an earthquake does hit, they'll be fine, which may or may not be true."

The longer the region goes without an earthquake, the less likely Californians are to prepare for one. A 2006 Insurance Information Network of California study found that between 60 and 69 percent of respondents across the state said that they are not prepared for the threat of a mudslide (often a consequence of earthquakes) at their homes or businesses.

The cost of earthquake insurance naturally plays a role in Californians' decisions not to buy coverage, especially in the current economic climate. A premium estimate for a 2,700-square-foot two-story wood home -- valued for insurance at $750,000 -- in the heart of San Francisco, a high-risk area, could be as high as $4,300 per year, and that's on top of a regular homeowners policy.

"Whereas that same house in the Inland Empire, near L.A., say San Bernardino or Riverside, would be half that expense," says Moraga.

The CEA has a premium estimator on its website.

The climate of earthquake insurance

Right now the earthquake insurance market in California is more competitive than ever. There are more policies available and more insurers to choose from. Some years ago the CEA was the only place to obtain earthquake insurance, but now there are more private companies offering policies. What's more, because of earthquake research, scientists are able to pinpoint higher-risk areas and thus make premiums more accurate.

The policies have also vastly improved. In the past they offered bare minimum coverage, typically with 15 percent deductibles and very limited coverage for contents and additional living expenses. "Now you can actually buy policies with 10 percent deductibles, and since July 1, the CEA started a new program called Your Choice where you can actually tailor-make policies," says Moraga.

You can choose the amount for just the structure, structure plus contents and additional living expenses or any combination of coverage based on need and finances.

Like nothing we've seen before

The financial ripple effects of a major urban area being hit by a substantial earthquake will be like nothing we have seen previously.

"If more than 88 percent [of homeowners] don't have policies, who's going to pay for the devastation if we have a big one?" asks Moraga. After Hurricane Katrina, the image of the federal government coming in as a knight in shining armor was shattered.

Homeowners should know that FEMA is fairly limited in what it can provide. Grants tap out at about $31,000, which is not likely enough to rebuild or repair substantial damage to a home; plus people not everyone will qualify.

Just because you lost your home and don't have insurance doesn't mean you will automatically receive a grant.

The Small Business Administration provides low-interest disaster loans, but those have to be paid back and are also determined by credit worthiness and income. If you already have a significant mortgage, you may not qualify for a substantial rebuilding loan.

In addition to having millions of people without homes or jobs, large parts of the country could come to a complete halt. A catastrophic earthquake in California would have a national impact including disruptions to supply lines, shock to financial markets and a drain on the insurance system.

"People may also believe that their family, friends, neighbors, or charity will take care of them, which may be true. Following Hurricane Sandy, millions were donated to the Red Cross to aid disaster victims. Of course, charity (and most friends and family) aren't going to buy you a new house," says Orma.

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