California Earthquake Update

The $1 Trillion Earthquake Warning: Is Your California Property Financially Prepared?

By Daniel Masarsky, CA Lic. 0D87510 · Published July 27, 2026 · Updated September 25, 2026

A major earthquake on California’s southern San Andreas Fault could cause as much as $1 trillion in total losses, according to a new estimate reported by the San Francisco Chronicle.

Dr. Ahmed Elbanna, director of the Statewide California Earthquake Center, told the California Seismic Safety Commission that a magnitude 7.8 earthquake extending from Imperial County toward Los Angeles County could cause at least $500 billion in damage—and potentially twice that amount.

Standard property insurance generally excludes earthquake damage

Many Californians assume their homeowners, renters, or commercial property insurance will respond after a major earthquake. In most cases, direct damage caused by earth movement is excluded.

A separate earthquake policy or endorsement is generally needed to insure damage caused by shaking. The California Department of Insurance confirms that standard homeowners and renters policies typically do not cover earthquake damage to buildings or personal property.

There is an important exception: California residential policies generally cover a fire that follows an earthquake. But structural cracking, foundation movement, and other direct shaking damage ordinarily require earthquake coverage.

Why the estimate has increased so dramatically

California’s earlier major-earthquake scenarios produced substantially lower loss estimates. The new projection reflects how much more expensive and interconnected the state has become.

A severe earthquake could damage homes, apartments, office buildings, utilities, roads, and communications systems simultaneously. Business closures, supply-chain interruptions, post-earthquake fires, and landslides could multiply the initial losses. Labor shortages and demand for construction materials could then make repairs more expensive and extend rebuilding timelines.

That means a property’s current replacement-cost estimate deserves attention. A limit based on an outdated construction figure may not adequately reflect what it would cost to rebuild after a widespread disaster.

Earthquake deductibles work differently

Earthquake insurance commonly uses a deductible calculated as a percentage of the insured limit—not a simple flat amount.

For example, a 15% deductible on $800,000 of dwelling coverage equals $120,000. That does not necessarily mean the homeowner must hand the insurer $120,000 before receiving assistance. It generally means covered damage must exceed the applicable deductible before the policy begins paying, subject to its terms and limits.

Available deductible options can affect both the premium and the amount retained by the property owner. When comparing policies, examine the actual dollar amount of each deductible and whether separate deductibles apply to the building, personal property, or other coverages.

Coverage involves more than rebuilding the structure

A useful earthquake-insurance review should consider several potential expenses:

• Dwelling or building repairs
• Personal property and business equipment
• Temporary housing or loss-of-use expenses
• Condominium loss assessments
• Building-code upgrade costs
• Debris removal
• Business income and extra expense
• Tenant improvements
• Ordinance-or-law requirements

Condominium owners should pay particular attention to the association’s earthquake insurance. An HOA may have no earthquake coverage, a large master-policy deductible, or limits that do not cover the entire building. Unit owners can then face substantial assessments following a loss.

Renters do not insure the building, but they may still need protection for their belongings and the additional cost of living elsewhere while the residence is repaired.

Commercial property owners and tenants should review earthquake coverage alongside lease obligations. A tenant may be responsible for equipment, improvements, or lost income even when the building owner is responsible for the structure.

Insurance and retrofitting solve different problems

Earthquake insurance is financial protection. Seismic retrofitting is physical risk reduction. For many properties, the strongest strategy may include both.

Foundation bolting, cripple-wall bracing, and securing water heaters can reduce the likelihood of severe damage in certain homes. Retrofitting may also qualify an eligible property for an insurance discount.

However, a retrofit cannot eliminate every loss. Even a strengthened building may be affected by neighboring fires, damaged utilities, falling contents, or an extended evacuation. Likewise, insurance cannot prevent injuries or shorten the time required to rebuild.

Government assistance is not a replacement for insurance

Federal disaster assistance should not be treated as a guaranteed rebuilding fund. According to the California Department of Insurance, much of the available federal assistance after a disaster may take the form of loans that must be repaid. Grants can be limited and may not restore a property to its pre-loss condition. An uninsured homeowner could therefore remain responsible for a mortgage while also paying for repairs and temporary housing.

Questions California property owners should ask now

• What would it cost to rebuild the property today?
• How much is the deductible in dollars?
• Could I absorb that amount without selling assets or taking on significant debt?
• Does the policy include adequate temporary-living or business-interruption coverage?
• Are personal property, tenant improvements, and code upgrades covered?
• For a condominium, what does the HOA master policy insure?
• Is the property eligible for a seismic-retrofit discount?
• Which losses remain excluded?