Missouri regulators warn of a lack of
earthquake insurance sales
By Kevin P. Hennosy
Attention! The Missouri Department of Commerce and Insurance (MDCI) wants you to talk about earthquakes. Talk to your clients, your friends, your family, random people on the street, and any mental health professional with whom you interact.
Do it! Do not take “no” for an answer! Do it now! Earthquake!
Why all this fixation on earthquakes in the river valleys of the Mississippi, Ohio, and Missouri? Well, the good people at the MDCI and I are happy you asked.
Recent research finds that shoppers who do business with agents and who talk about earthquakes with family and friends prove likelier to purchase earthquake insurance. The MDCI encourages those purchases.
And if the tidbit above does not sate your thirst for earthquake insurance information, then you will love reading a report jointly produced by the National Association of Insurance Commissioners (NAIC), the Center for Insurance Policy and Research (CIPR), the MDCI, and the Disaster and Community Crisis Center at the University of Missouri.
With the eye-catching title Addressing the New Madrid Seismic Zone Earthquake Protection Gap: Insights into Homeowners and Renters Earthquake Insurance Uptake from Comprehensive Primary Data, do not expect to find the report in barbershops across the Midwest. You may obtain a free copy from the NAIC website—if you have not already done so.
The earnest insurance regulators of the “Show Me State” warn of an Earthquake Protection Insurance Coverage Gap (EPIC Gap).
(Ok, in the interest of objective journalism, I admit that the MDCI uses the term “Earthquake Insurance Protection Coverage Gap,” but that arrangement of the same words does not result in a cool acronym for the subhead to this section.)
The Addressing the New Madrid Seismic Zone report cites an MDCI annual study of Earthquake Insurance Coverage (EIC): “In its latest 2021 coverage report the Missouri DCI finds that in 91 of Missouri’s 115 counties (79% of counties), only 20% or less of residences have earthquake insurance coverage.”
The 2021 Missouri study showed a drop in property owners purchasing EIC: “On average, 24% of residential dwellings (i.e., homeowners, farms, and mobile homes) across the state have earthquake coverage, representing a drop of nearly 20% on average across the state since 2000.”
All this raises the question: Why do Missouri insurance regulators have such a powerful hunger for earthquake data?
The data-driven answer to that question centers upon something called the New Madrid Seismic Zone (NMSZ), which is something real and not just made up to make a snazzy acronym. Several active fault lines in the Earth’s crust pass just south of the town of New Madrid, Missouri, from which the zone gets its name.
The NMSZ includes sections of Missouri, Illinois, Indiana, Tennessee, Mississippi, and Arkansas. The several faults in the Missouri Bootheel were epicenters of a series of massive earthquakes between December 16, 1811, and February 1812.
Geologists and seismologists estimate that the first quake registered 7.2 to 8.2 on the Mercalli intensity scale. Later the same day, a 7.4 aftershock followed. The region experienced at least two more aftershocks of between 7.8 and 8.2.
There are numerous contemporary descriptions of the quakes. The early 19th century was an era of tall tales told around cabin’s hearths, so some doubt the accuracy of stories that feature church bells ringing in Maryland or the Mississippi River flowing north during the quakes. After all, it was a time when people believed a keel boat captain named Mike Fink was half-man, half-alligator, and devoured pain for breakfast.
In this case, many of the firsthand accounts prove true or scientifically defendable. In 2008, the Federal Emergency Management Agency (FEMA) issued a report confirming the destructive risk of earthquakes in the region. Massive earthquakes are rare occurrences in the NMSZ, but scientific study proves that such quakes have occurred and hypothesize that the quakes will happen again.
“In its latest 2021 coverage report the Missouri DCI finds that in 91 of Missouri’s 115 counties
(79% of counties), only 20% or less of residences have earthquake insurance coverage.”
–The Addressing New Madrid Seismic Zone … report
The MDCI’s interest in tracking earthquake insurance is stronger than most agencies. The interest did not arise after publication of a FEMA report or a historical tract. The MDCI started tracing EIC in response to a quake that never happened 32 years ago.
Sometime in the summer of 1990, a self-proclaimed expert in several scientific fields by the name of Iben Browning (1918-1991) predicted a catastrophic earthquake event in the NMSZ on December 3, 1990.
A long history of charlatan, and general flim-flam dating back to the 1970s, preceded Browning’s bold prediction. Some journalists even reported on Browning’s long-term battle with climate science and penchant for predicting cataclysmic events that never would happen. Still, his prediction of a quake that would destroy St. Louis took hold in the “tin foil hat” set and then spread into swaths of the general population.
In the fall of 1990, the Missouri Department working with the NAIC hosted an earthquake summit of insurance regulators, of sorts, at a St. Louis airport hotel. Regulatory representatives of the NMSZ states received invitations to discuss their preparations for the possible day of reckoning predicted for December 3. A small number of journalists attended the event and enjoyed the meager snacks and soft drinks in the back of the meeting room. Kevin P. Hennosy was the NAIC’s press liaison at that time.
Oddly enough, the NAIC was meeting in Louisville, Kentucky, on Browning’s prophesized quake date. The city sat on the eastern edge of the circle of death suggested by “Iben the Terrible.”
The impending financial failure of First Executive Life Insurance was shaking the NAIC’s world at the December 1990 meeting. In a closed session, the commissioners adopted a resolution that threatened the New Jersey Insurance Department with various forms of retribution if the Garden State regulators required Executive Life to set aside a special fund to pay New Jersey claims. The NAIC officers hoped to keep the “double secret” resolution confidential for three or four days while other regulators could bully New Jersey officials to step away from the special fund threat. Yet, with several hundred insurance regulators in the closed ballroom, and 1,800 insurance lobbyists in or near the hotel, the effort to bottle up the resolution was nothing less than folly. The Dow Jones Newswires carried a draft copy of the resolution within an hour of its final passage.
But I digress.
For those too young to remember: Neither St. Louis nor Louisville was swallowed into a void between two tectonic plates that day. The Ohio, Missouri, and Mississippi Rivers continued to flow south.
Iben Browning’s always-shaky credibility suffered a catastrophic loss that day, but that was a time before social media could keep reality from crushing the belief in a good story.
From that time on, the MDCI has tracked EIP data on an annual basis, which played an important part of the analysis reported on by Missouri regulators, the NAIC, the CIPR, and Disaster and Community Crisis Center of the University of Missouri on November 1, 2022.
The report delivers an interesting discussion of earthquake risk, insurance coverage, and consumer purchasing decisions. The researchers endeavored to explain why consumers tended to buy and renew earthquake insurance coverage for a decade after Browning’s fallacious prediction, only to ignore the product since the year 2000.
The report refers to an Earthquake Protection Gap to describe this falling rate of product sales. The term Earthquake Protection Gap only briefly caused this writer to recall the 1963 film Doctor Strangelove, where General Buck Turgidson implores the American chief executive: “Mr. President, we must not allow a mineshaft gap!” But that obscure reference passed.
Researchers drew completed consumer surveys from eight states and identified traits associated with completed sales of earthquake insurance products. The report states, “Overall, we find that the top three predictors of earthquake insurance uptake in the NMSZ are: 1) using insurance agents to help make insurance decisions; 2) talking to friends and family about earthquakes; and 3) consumer confidence in having enough information about earthquakes.”
The report recounts how insurance agents can take sales prospects through the process of building “confidence in having enough information about earthquakes” and insurance coverage. They can establish the risk of an earthquake in the Midwest, and what kind of destruction that would follow an event and alert the prospect of the lack of such coverage in standard property insurance products. Then, it is a familiar process of explaining how the product addresses the prospect’s concerns.
All of this begins with encouraging discussion about earthquakes, which is why Missouri insurance regulators champion the topic.
Addressing the New Madrid Seismic Zone Earthquake Protection Gap Insights into Homeowners and Renters Earthquake Insurance Uptake from Comprehensive Primary Data is available in a PDF format from the NAIC. It is a useful compilation of information on earthquake risk and insurance marketing.
What the report does not include is a regulatory review of earthquake insurance products and whether the products’ design transfers the risk of loss at a fair price.
But with regard to the insurance regulatory system, one cannot have everything.
Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.