Earthquake insurance take-up rates may not be the best measure of an area's preparedness for and awareness of the risk, as there are cost/benefit factors at play. Residents in California, for example, would all likely say they want to be protected against earthquakes, but the take-up rate among personal-lines consumers is dismally low at around 10%.

John Preli, earthquake and terrorism underwriting manager for FM Global, speaks from his experience living there: “I lived in california for many years. I didn't buy earthquake insurance,” he says. “Number one, because my assets were not that great, and number two, the terms and conditions were such that I didn't feel I was getting a lot for my money by purchasing it.” Deductibles are high and the coverage can be costly, he notes.

He adds, “That was post Northridge [the 1994 quake that struck the San Fernando Valley]. Pre Northridge, I think a lot of people bought earthquake insurance and you had quite a few companies go out of business in the 30 seconds that it shook.”

For commercial-lines insurance, Preli says whether a business will purchase earthquake coverage is “largely dependent on a company's risk tolerance, which varies depending on a myriad of factors,” such as who the company's customers are and what requirements a company's board sets.

“You can have the best-protected building and plant in operation that would have minimal damage [from an earthquake], but the board of directors still requires purchase,” Preli says. “And the exact opposite could happen.”

A company will generally factor in its mitigation measures and its annual insurance budget. Preli says.

Insurers, too, have considerations. Preli notes an earthquakes will not just impact one insured in a given area, but rather many at once. “We have to balance exposure with risk appetite,” he says.

Like personal-lines, Preli says commercial earthquake insurance is normally a separate coverage purchased with its own limit and deductible. Many commercial policies, he says, will include coverage for everything that can happen during an earthquake: shaking, a resulting fire and water damage from sprinklers going off or from a levee break or tsunami.

As for FM Global, he says earthquake coverage is part of a suite of perils covered under “earth movement.” Losses from sinkholes, volcanoes and landslides also fall under earth movement, he says. A resulting fire and water damage would fall under a separate fire coverage, and flood from earthquake and tsunami would also be covered under its own separate policy. Each policy, Preli says, offers separate limits, and therefore more overall coverage, and has separate deductibles.

Preparedness beyond insurance

While many recent stories since the Napa earthquake have focused on the low insurance take-up rate in the state, California leads the way in the U.S. for preparedness in other areas.

“California has highly developed earthquake building codes,” says Harold Magistrale, senior lead research specialist at FM Global, who is the technical team leader for all of the company's geological sciences research.

New buildings, he says, have to be built to modern earthquake standards—ensuring they either have flexibility or that some part of the building can absorb earthquake energy without falling down. Even many older buildings in California are retrofitted to be earthquake resistant, Magistrale says, which involves tying together all structural elements: Walls to foundation; roof and floor to walls.

Magistrale and Preli both note, though, that even structures built to code are designed with the idea of saving lives; not necessarily limiting property damage. Any building, they say, may not be available to use after a quake.

The recent earthquake and how buildings performed

How do buildings perform when they're built to code or retrofitted to withstand earthquakes? The recent Napa earthquake is instructive. As is usually the case, images of the earthquake's aftermath focused on the damage done to buildings and the contents within. But for Magistrale and Preli, who have been around a lot of earthquake-damaged areas, the scene was what they expected: bricks and cinderblocks were among much of the rubble discovered, from buildings not designed to withstand earthquakes.

“The kind of damage that we've seen in the pictures from this earthquake looks pretty typical,” Magistrale says. “The kinds of things that broke are the kinds of things you expect to break.”

Preli adds he is not aware of any well-designed building in the area suffering any significant structural loss. What's inside the buildings is another matter. Preli notes that many images in the news focused on ruined barrels after the Napa earthquake, but if these barrels are stacked when the earth shakes, then such damage is to be expected and does not reflect the resistance of the buildings they were in.

If it works, why doesn't everyone do it?

With the success during earthquakes of structures built to code in California and elsewhere, it would seem to make sense for all areas at risk to adopt and enforce similar codes. But that is not the case, and as the saying goes, “Out of sight, out of mind.”

Says Preli, “There are many jurisdictions—countries, counties, states—that have fabulous seismic codes, but they're either not mandatory or they're not enforced. So it's a mixed bag.”

Magistrale points out that the best-prepared areas are, unsurprisingly, those that have experienced earthquakes in the recent past and have had time to absorb lessons and put those lessons to practical use. He cites California and Japan as two examples.

But risks are present elsewhere, even in the U.S. The New Madrid fault line, for example, experienced four earthquakes of magnitude 7 or higher between December 1811 and January 1812, and the thinking is that the New Madrid system is indeed active.

“Some geologic investigations found evidence of previous earthquakes in that area,” Magistrale says, noting that the New Madrid fault line shows up on both the USGS national seismic hazard map and on FM Global's earthquake risk-zone maps.

Yet, Magistrale says, areas along the fault line do not take building codes very seriously.

Preli adds that the New Madrid system includes a big area, across many states, each with different codes and different levels of enforcement.

Studying faults in such an area, Magistrale notes, is more difficult than studying the San Andreas fault line. The New Madrid system is in the middle of the continent, and the faults that cause earthquakes are buried deeper, while the San Andreas system is along a plate boundary, making access and observation much easier.

Still, even if studying the New Madrid system was easier, Magistrale does not believe the information gained would impact preparedness there. “It's not the level of investigation that determines preparedness,” he says, “but time since last earthquake.”

He notes there is typically a big spike in interest shortly after an earthquake, but that interest then falls back down to zero. “In New Madrid,” he says, “it's been over 200 years” since the major earthquakes there. “There's no cultural memory of dealing with it.”

In California, by contrast, as this week's event shows, “you get reminders.”