Earthquake risk is underpriced: why Seattle and the West Coast rank so high
Earthquake is the hazard most likely to be missing from your model entirely — and that is exactly why it is dangerous. It is low frequency and high severity, standard property policies exclude it, and a major event does not appear in a five-year hold projection. So investors treat it as a tail they will never see. The carriers do not, and neither should you.
Why the West Coast ranks so high
On FEMA's National Risk Index, the top-percentile earthquake metros are Los Angeles (100), San Jose (99.9), Seattle (99.9), and San Francisco. Seattle is the instructive one: it lands in the national top-10 for overall risk almost entirely on seismic exposure. The USGS National Seismic Hazard Model maps why — the Pacific Northwest sits over the Cascadia subduction zone, capable of a magnitude-9 event, while California rides the San Andreas system.
Excluded by default, expensive to add
Because standard commercial property policies exclude earthquake, the cost shows up in one of two places: a separate earthquake (DIC) policywith a high deductible — commonly 10–20% of insured value — or, if you skip it, uninsured tail risk sitting on your balance sheet. Both are real costs; pretending the second one is zero is how a single event wipes the equity in a levered deal.
Lenders increasingly force the question. Many require a seismic risk assessment — a Probable Maximum Loss (PML)study — on assets in high-seismic zones, and will require earthquake coverage above a PML threshold (often around 20%). If you have not priced that into the deal, the lender will price it for you, after you are committed.
The right way to carry earthquake in a West Coast pro forma is not a line item of zero. It is either an explicit DIC premium with its deductible modeled, or an explicit, quantified decision to self-insure the tail — ideally informed by a PML study. “We'll deal with it later” is not an underwriting position.
What to verify before you offer in a seismic market
- Pull the seismic hazardfor the address (USGS) and the building's construction type — unreinforced masonry and soft-story buildings carry far higher loss potential.
- Order or review a PML study. It drives both your insurance requirement and your real exposure.
- Get a DIC quote with the deductible spelled out, and decide explicitly whether to buy it or self-insure.
- Check retrofit status and local mandates. Cities like Los Angeles and San Francisco have mandatory retrofit ordinances; un-retrofitted buildings can be both a liability and a capex surprise.
Earthquake is the clearest case of the broader theme — insurance as the swing variable — but it sits alongside wildfire and flood in the markets that rank highest overall. See the full picture in the riskiest-metros ranking or browse any market on the Risk Index.
Check seismic + insurance exposure on any address
The free Deal Scan returns the earthquake score and the broader hazard / insurance read for a specific property, with the cap rate and comps — so the tail risk is in the model, not a surprise after the lender's PML study.