The Earthquake Insurance Market In Missouri Is Worse Than You Thought

Chris Westfall
Chris Westfall

The Missouri earthquake insurance market, especially in the six counties that sit over the New Madrid Fault, has contracted so severely over the past decade that state regulators are questioning the viability of a private market solution.

“[It] appears that insurers have either determined that the New Madrid fault presents a risk greater than previously believed or, as is the case of at least one major insurer, less tolerance to insure all catastrophe risks,” said a report released last week by the Missouri Department of Insurance.

The report details the dire state of the earthquake risk in the state, noting that coverage has contracted as 72 insurers exited the Missouri earthquake market between 2000 and 2018. Residents that are able to find policies are being priced out of the market with premium increases of as much as 500 percent over the same period.

“In short, coverage has become significantly less available and less affordable in the areas that require it most,” the report states.

Some of the impacts listed in the report include:

  • The highest risk area of the state average premiums paid have increased by over 700 percent since 2000.
  • In 2000 over 60 percent of dwellings in the six-county New Madrid area had earthquake coverage, but by 2018 less than 14 percent had coverage.

Additional reinsurance capacity and access alternative risk transfer products, such as catastrophe bonds, are also unlikely to solve the Show Me State’s earthquake insurance issues since their is reluctance of primary insurers to write coverage at any price. That’s even though, as the report states, a little over 70 percent of direct earthquake premium was ceded to reinsurance as of 2018.

“[It] doesn’t appear that a lack of access to reinsurance accounts for the deterioration of the Missouri earthquake market, particularly in recent years,” the report states. “[The] cost of reinsurance remains well below the peak of 2007, and does not appear to account for current market retractions in Missouri.

Finally, the report concludes that Missouri residents should not expect to expect the same private market reaction to an earthquake than was experience after the most recent catastrophic insurance event: the 2011 Joplin tornado.

Following that disaster, over $1 billion was made available to insureds three months following the EF-5 tornado and eventually cover more than $2 billion in losses.

“Such a recovery mechanism is almost entirely lacking in the area of the state most vulnerable to a New Madrid earthquake.”