About 110 miles south of St. Louis sits the potential for the biggest natural calamity in American history.
So says Swiss Re, the international insurance giant, in a new report on the New Madrid Seismic Zone.
A series of big shakes — of the sort last seen in 1811 and 1812 — would cause about $300 billion in damage, Swiss Re says. The cost would be double the damage from Hurricane Katrina in New Orleans in 2005.
Houses — especially brick ones — would collapse. Buildings would sink sideways into liquefying earth. Bridges might tumble into the rivers. The route of the Mississippi River could change — as it did in the last big quake.
People would die, perhaps by the thousands. Being mainly a property reinsurer, Swiss Re didn’t estimate the human toll.
Despite the distance, geology puts metro St. Louis well within the damage zone. Losses in St. Louis would be in the “tens of billions,” says Iain Bailey, the Swiss Re earthquake specialist who wrote the report.
“St. Louis is way up there on the places to be concerned about,” Bailey said.
Quakes east of the Rockies carry much farther than quakes in California. People in New York City were awakened by the New Madrid quakes.
Only 40 percent of the private loss would be covered by insurance. The result might be mass abandonment of ruins by people who can’t afford to rebuild, says Swiss Re.
Like New Orleans after Katrina, St. Louis might depopulate.
That, says Missouri Insurance Commissioner John Huff, keeps him awake at night. The percent of Missouri property covered by earthquake insurance has been dropping.
“We’ve seen a dramatic shift in the past 15 years,” Huff said.
In St. Louis County, 60 percent of homes are covered for earthquake, down from 75 percent in 2000. In St. Louis city, it’s 32 percent, down from 46 percent.
The situation is worse in the southeastern Missouri counties around New Madrid. Only 20 percent of homes are covered, down from 60 percent in 2000.
Insurance companies have been dropping coverage, and those that remain in the business are raising prices.
“All the metrics have been going in the wrong direction,” Huff said.
In counties around New Madrid, premiums rose 500 percent between 2000 and 2014, state insurance officials report.
Standard homeowners insurance doesn’t cover earthquakes. Those wanting coverage buy a special rider. You have to ask for it. If your insurance company doesn’t offer such riders, they probably won’t advertise the fact. That said, coverage is still fairly cheap. The average price paid in St. Louis County is $177 per year, and $117 in St. Charles County.
Part of the reluctance to buy coverage may stem from the giant deductibles, which have been getting bigger. Those deductibles are usually 15 to 20 percent of the insured value of the house. A homeowner with a $200,000 house and a 15 percent earthquake deductible would pay the first $30,000 in repair bills before insurance kicks in.
Some homeowners think the federal government will bail them out in a major disaster. Don’t count on it, says Huff.
But perhaps the biggest reason is that people think earthquake risk is small. After all, it’s been 203 years since the last big one.
Seismologists weren’t around in 1812, but the best guess is that the biggest quakes then were over 7.0 on the Richter scale. Swiss Re puts the chance of such a quake at 10 percent over the next 50 years.
Chances of a magnitude 6.5 — also a destructive quake — are at 25 to 40 percent, according to the U.S. Geological Survey.
But here’s the thing. Local geology is such that quakes, if they come, are more likely to come in bunches.
Two centuries ago, the area saw at least four major quakes over 54 days. There was a big one at 2 a.m. on Dec. 16, 1811, followed by a very large aftershock at 7 a.m. The other big quakes came on Jan. 23 and on Feb. 7, 1812.
The early settlers lost faith in the earth they stood on and camped outside on hilltops for months.
Today, people here might pack up and leave, says Andy Castaldi, senior vice president for catastrophe and perils at Swiss Re. After the first quake, they’d know that more were likely. “It’s as if you knew there might be three Katrinas ahead, but you don’t know when,” he said.
A basic principal of personal finance is this: Buy insurance for things that are unlikely but would ruin you if they happened. Earthquakes, like house fires, fall in that category.
Huff’s department counts 12 companies still offering quake coverage in St. Louis as of April. Not all companies will insure all houses, and some charge more for living behind brick. “There’s a bias against masonry homes,” said Huff.