When the long-anticipated mega-quake and tsunami strike the Pacific Northwest and surrounding areas, many survivors are likely to wish they had paid greater attention to their insurance coverage beforehand.

Karolyn Adamson, a member of Cannon Beach’s Emergency Preparedness Committee, gave a report during last month’s meeting that looked at the factors involved when insurance companies decide how much a person’s property will be insured for – and whether it will be insured at all.

State Farm Insurance – when it comes to homeowners insurance, for example – is “not insuring anyone for anything” within 1,000 feet of a coastline, Adamson said – a policy that has been in effect for three years.

The same is true of other insurance companies. In fact, some companies set the threshold at 2,500 feet of the average high-water mark, according to Tom Maltman, an insurance agent with State Farm in Seaside. And if a house is situated near a coastal river, its owner may have trouble finding coverage because those rivers tend to swell at high tide and may flood the area.

Many companies are “afraid that, when the disaster comes, that they’ll be hit so hard that they can’t afford to insure anyone, that they won’t be a viable company after that,” Adamson said.

After Adamson’s report, the Emergency Preparedness Committee raised the possibility of hosting a special forum this spring to educate the community on the importance of understanding one’s insurance policy and options. Insurance falls under the rubric of disaster preparedness, she said, even though it’s not the first thing that leaps to mind when considering tsunami survival.

“The point is to get people thinking about it and to start asking questions so they can get the best possible coverage they can,” Maltman said.

‘Acts of God’

Under the Federal Emergency Management Agency’s definition, a flood consists of “the general and temporary condition of partial or complete inundation of two or more acres of normally dry land, or two or more properties of which one is your property.” The flood must also originate from a groundwater source, which includes overflows from inland and tidal waters.

For insurance purposes, a tsunami counts as a flood, which is good news for homeowners who fall within the inundation zone and outside the uninsurable zone.

The bad news, Adamson said, is that – in light of recent high-profile flood-related catastrophes, such as hurricanes Katrina and Sandy, and regular flooding throughout the Midwest – many insurance companies are “getting out of the flood insurance business.”

“The more info we get about where these things happen and how often, the more people are looking at their odds in the insurance business for going bankrupt,” she added after the meeting. “Insurance companies are like stock. They make bets. They’re like gambling.”

Most homeowners who purchases flood insurance are automatically enrolled in FEMA’s National Flood Insurance Program. Insurance companies act as vendors for the program; the federal government underwrites it while setting the rates and rules.

But, with certain exceptions, the program caps flood insurance at $250,000 – with the occasional $30,000 thrown in to mitigate future losses if the property is likely to be hit repeatedly by the same type of disaster. The multimillion dollar oceanfront homes in the area, then, may want to keep shopping around.

“It’s really hard to underwrite for an act of God, so they cap it,” Maltman said, adding that such disasters as earthquakes and tsunamis, especially the kind that the North Coast can look forward to, tend to be “one-off events in the lifetimes of those who suffer.”

Ask questions, demand answers

The “best way for people to protect themselves is to have both earthquake coverage and flood coverage,” Maltman said, noting that these are the two main exclusions from standard homeowners insurance.

Adamson and Maltman both suggest that homeowners ask their insurance agents very pointed questions, demand very specific answers and use them to make informed decisions.

If homeowners are concerned about the possibility of an earthquake, they should ask their agent if their policy specifically insures them against earthquakes and, if not, how they can acquire it.

“In order to mitigate financial loss for earthquake, in many cases a homeowner policy can be endorsed to secure earthquake coverage,” Maltman said. Stand-alone earthquake policies are also available on the insurance market, as are flood policies that exceed the federal pay out.

Once FEMA’s Flood Insurance Reform Act of 2012 kicks in this year – after which the federal government will cease subsidizing flood insurance – some homeowners may need to rethink their options as they watch their premiums escalate.

“The government is trying to bring the program back to what it was originally intended to do, which is to be self-sustaining,” said Steve Putnam, an insurance agent with Farmers Insurance in Seaside. “Those folks that have flood insurance are going to have to expect some changes coming forward,”

Putnam added that the National Flood Insurance Program remains “the best option” for most people.

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