Sleepless in Seattle.

Property/casualty insurers are still counting their losses from an earthquake that shook the Pacific Northwest on Feb. 28. The price tag could reach $1 billion when the dust finally settles.

The earthquake that rocked Seattle and surrounding areas is likely to cost property/casualty insurers between $500 million and $1 billion, the Insurance Information Institute estimates.

Using computer-modeling techniques to estimate insured losses, Oakland, Calif.-based Eqecat has estimated the damage in this catastrophe to be between $500 million and $800 million. Boston-based Applied Insurance Research's estimates were slightly higher. Any variance in loss estimates is a result of the difficulty assessing losses immediately after an earthquake, because a lot of the damage is discovered after closer inspection, the Insurance Information Institute said in a statement.

Most of the claims resulting from the largest earthquake to hit the area since 1949 will derive from cracked walls, foundations and contents; damaged roofs and damaged automobiles, mostly in the Olympia, Wash., area, the institute said. The epicenter of the earthquake, which struck at 10:55 am. Pacific Standard Time on Feb. 28, was about 15 kilometers (9.32 miles) northeast of Olympia and about 49 kilometers (30.45 miles) deep, according to the U.S. Geological Survey The earthquake had a preliminary magnitude of 6.8 and was felt as far south as Eugene, Ore., the USGS said.

Structural damage will be contained to "older, unreinforced masonry buildings and to isolated areas of ground failure," Ahmet Yakut, structural engineer for Applied Insurance Research, said in a statement. Damage to buildings was one factor that led Swiss Re to put initial estimates for total insured losses to the industry between $500 million and $700 million. The reinsurer estimated that it would incur an insured loss of between $60 million and $61 million as a result of the quake.

Earthquake Policies Required

Property/casualty insurers will be responsible only for policyholders who carry supplemental earthquake coverage. Standard homeowners and renters policies do not cover damage from an earthquake. About 12% of homeowners in Washington have supplemental earthquake policies, which usually carry a 10% to 25% deductible, the institute said. Automobiles damaged in the quake are covered under the comprehensive portion of an auto insurance policy, the institute added.

In Washington, Safeco is the top writer of homeowners multiple peril, with a 17.19% market share, according to A.M. Best Co. data for 1999. State Farm is second, with a 16.97%; followed by Farmers Insurance Company of Washington, 13.37%; Allstate Insurance Group, 11.76%; and Pemco Mutual Insurance Co., 6.98%.

Although there will be some financial burden, the event does not call for the establishment of a quasi state-run entity similar to the California Earthquake Authority, said Robert Hartwig, vice president and economist for the institute. Damage from the Washington quake was not as severe as damage from the one that hit Northridge, Calif., he said.

The CEA was established following the 1994 Northridge Earthquake that caused severe damage in California, and many insurers subsequently stopped writing earthquake insurance in the state. As a result, the California Legislature created the nonprofit authority to provide affordable, basic earthquake insurance to residents. The authority is governed by a three-member voting board of elected officials, but it is funded completely by premiums it collects. Insurance companies in the state act as agents and must offer earthquake insurance to homeowners under state law.

Earthquake coverage in Washington historically has always been available, Hartwig said. Therefore, until there is a prolonged shortage of coverage, "it's better to keep the market in the hands of the private sector," he said.

What is needed is an educational campaign to alert business owners and homeowners to the benefits of quake coverage, Hartwig said. The reason 88% of holders of Washington homeowners policies don't have earthquake coverage is that they think "it can't happen to them," he said. Having a state-run earthquake authority would not change that situation, he said.

Hartwig pointed to the educational campaign for subsidized flood insurance as a model for the campaign earthquake insurers should launch. "They need to be educated and reinforced in the same way the flood advertisements do on TV," he said. Washington residents need to learn how spending an average $200 to $300 a year in premiums can "change their financial destiny."

"Where else can you get a new house for $300?" Hartwig asked. "The answer is, nowhere else." Earthquake insurance also frees policyholders from grants and loans from the state. Washington homeowners who have earthquake policies "may already have seen their check cut by their insurer," he said.

30-Day Moratorium

After the quake, Seattle-based Safeco established a 30-day moratorium on writing new earthquake policies. Only 8.3% of Safeco homeowners policyholders also carry earthquake coverage, the company said. The average annual premium for the policy is $391. In a statement, a Safeco spokeswoman called the moratorium "a sensible and responsible business decision in line with peer companies in our marketplace."

Hartwig agreed that insurers often impose moratoriums after a major catastrophe, such as an earthquake. The insurers do so to protect themselves against the immediate threat of aftershocks. "You wouldn't insure a house on fire when it is mostly out," he said.

Insurers also use the moratorium period to look at catastrophe models and reassess risk in that area. Now that demand is up, insurers need to make sure they price surge business appropriately, Hartwig said.

"A new event brings with it an incredible amount of data," he said.

                 Top Writers in Washington State--1999
             In the aftermath of the earthquake that shook
             Seattle Feb. 28, 2001, these insurers are most
                         likely to be affected.
                                ($ 000)
                                  Direct
                                Premiums
Company                          Written
Homeowners
Safeco Insurance Cos.           $106,714
State Farm Group                 105,334
Farmers Insurance Group           82,987
Allstate Insurance Group          73,036
Pemco Insurance Cos.              43,361
Auto Physical Damage
State Farm Group                $151,289
Allstate Insurance Group         138,160
Farmers Insurance Group          126,226
Safeco Insurance Cos.             94,077
Pemco Insurance Cos.              91,378
Commercial Multiple Peril
Safeco Insurance Cos.            $35,659
CNA Insurance Cos.                14,756
American Economy Insurance Co.    14,750
Travelers PC Group                13,842
American States Insurance Co.     12,794
Source: A.M. Best Statement Products

Deep and Wide

Because the 6.8-magnitude quake originated some 49 kilometers (30.45 miles) below ground, damage was not as severe as it would have been if the tremor had been closer. The quake was felt as far away as Eugene, Ore., about 250 miles south of Seattle.