Anyone who has been impacted by the recent volatility of the stock market will tell you that it's impossible to time the stock market's ups and downs — and even more difficult in today's financial environment. If you even attempt to "beat" the market, over the long run, you will lose. The same can be said for earthquake insurance.

Most people think that earthquakes are a California problem, but earthquake activity can and has occurred in Nevada, Utah and as far east as Illinois and Georgia. With each earthquake, managing general agents see an increase in the number of retail agents requesting new earthquake coverage for their insureds. Many of these insureds may purchase earthquake insurance because they realized they need coverage and will continue to purchase it for the long term. Yet many are trying to time the earthquake market.

It is when earthquake activity occurs in their region that insureds decide it's time to buy earthquake insurance. Once the activity subsides, they cancel or let their policies lapse. This is a bad approach, and agents need to advise their clients accordingly.

Timing May Be Wrong
If insureds think they can wait for a few tremors in their area and then have time to obtain a new earthquake policy, they could be very wrong. Quite often, there are no signs of earthquake activity prior to a moderate to major severity earthquake (categorized as a magnitude 5.0 or higher). Loss can happen without any prior activity or notice.

It May Be Too Late to Get Coverage
After an earthquake or small tremor occurs, most insurers implement a moratorium on new policies in that region for a period of days, when no new policies can be written. This protects insurers against following aftershocks or decreases the chances of insuring a building that was damaged by the initial earthquake (prior to the insured purchasing coverage). So, in many cases, agents will not be able to find coverage for their client's home or business property.

The Coverage May Cost More
The law of supply and demand often kicks in for a region that shows signs of earthquake activity. With the occurrence of an earthquake, more consumers rush to buy coverage. As capacity is often limited, the supply stays constant but the demand goes up — driving prices up. Insureds could pay significantly more than if they had purchased an annual policy prior to any actual quake. In addition, insurers may reward long-term customers with renewal credits for staying with the same insurer for a period of years.

Important Factors for Insureds
In helping clients with earthquake insurance, there are important factors that agents need to understand before placing coverage.

Location — Many services, including the Insurance Services Office (ISO), rate the exposure of a particular geographic area by assigning it an earthquake hazard zone. It is important to understand whether a client's location is in a high or low hazard zone. This will impact coverage availability and pricing. Earthquake zone maps are available from ISO and other risk assessment companies.

Building Construction — Construction can impact damageability, and therefore rates, in a manner that is different than the typical fire exposure. For instance, a frame building can withstand an earthquake better than a masonry building. There also is a difference in a true masonry building versus a brick veneer building in withstanding damage from an earthquake (brick veneer buildings do not hold up as well in earthquakes).

Year Constructed — Building codes have been instituted in many areas susceptible to earthquakes. Understand what codes were in place when the building was constructed and whether any earthquake code modifications have been made to the building.

Special Deductibles — Special deductibles often apply, usually as a percentage of the total insured values (TIV) being covered for quake. Deductibles can range between 1 percent and 10 percent of TIVs.

Frequently, the amount of money spent on earthquake insurance premiums is a small percentage of a consumer's overall insurance spend, making coverage worth the cost. Also, many consumers do not realize that earthquake is not covered in most standard commercial property and homeowners' policies but must be added as a separate coverage.

If you listen to the Wall Street pundits, they often claim "buy and hold over the long term" is the best strategy for asset protection. Such a strategy pays off for earthquake coverage as well. Agents should work with their customers to determine their coverage needs and options, and strengthen their personal or business asset protection plan.