Hawaiian earthquake reminder of threat.

The 6.6 magnitude earthquake that shook Hawaii's Big Island Oct. 15 is a notice that earthquakes are a serious threat beyond the boundaries of California, experts said.

Robert Hartwig, executive vice president and chief economist for the Insurance Information Institute, called the quake, "a reminder that disaster can strike anywhere at any time." And Hartwig noted Hawaii, which is prone to earthquakes because of its active volcanoes, could "see very substantial losses from earthquakes in the future."

According to A.M. Best Co.'s 2006 Annual Earthquake Study, released Oct. 16, the U.S. property/casualty insurance industry is "long overdue for heavy losses from a massive earthquake." The report notes the last such event was more than a century ago, and it is "only a matter of time" before another massive quake strikes any number of areas.

The report said a quake along the lines of the 1906 San Francisco earthquake could cause insured losses of $100 billion or more, stressing "thinly capitalized insurers with heavy concentrations of earthquake, fire, multiperil and automobile" coverage in the area affected. The insurers most at risk would be those with a Best's Financial Strength Rating of B (Fair) or lower, or unrated insurers.

But Hartwig said the Hawaii quake, which was 80% of the strength of the 6.7 magnitude 1994 Northridge earthquake, was unlikely to be a major insurance catastrophe. He did estimate, though, that because of its strength, insured losses could run in the millions of dollars.

"I would suspect because of the relatively high deductibles and the limited penetration of the product, that the impact on insurers would be quite manageable and probably very modest," he said. "Obviously, there is some potential loss to insurers associated with homeowners who have purchased earthquake coverage in Hawaii, and there's likely to be some in force given that it is a known seismically active zone"

Steve Smith, an atmospheric physicist and vice president with Carvill's ReAdvisory, said the quake's strength "gives the potential for significant damage." But he said "given what we've seen so far, I don't think there is going to be a tremendous amount of insured losses, in terms of straight property losses."

Smith attributed this to Hawaii's known seismic nature. "The island, in general, is prepared for it to some extent, and the building codes do take some consideration of the fact that this is an earthquake-prone area,' Smith said. "The fact we don't seem to be seeing a large amount of property damage is probably related to the fact that the island is fairly well prepared for an event of this type."

Hawaii ranks 33rd in direct premium written for earthquake coverage, with $4.4 million written, according to A.M. Best's report. Most consumers don't purchase earthquake coverage, according to the report, with 85% to 90% lacking insurance protection. The report notes that earthquake is an excluded peril from most homeowners and commercial policies, but those do cover fire following a quake. And most auto policies cover physical damage from a quake.

In 2005, the top five writers of earthquake coverage in Hawaii, according to A.M. Best Co. state/line product information based on direct premiums written, were American International Group, with a 20.6% market share; Ace Insurance North America Group, with 18.2%; Axis Insurance Group, with 10.6%; USAA Group, with 8.4%; and GE Insurance Solutions Group, with 7%.

For information on A.M. Best's 2006 Annual Earthquake Study call customer service, [phone], ext. 5742.