What’s the incentive to purchase insurance? It will reduce their profits. If you are an executive of a company offering earthquake insurance, better to just keeps profits high now, make a high salary, and when the big quake hits, declare bankruptcy and walk away.
they're much more sophisticated than that. they'll do things like say the damage was caused by wind, not water. they'll influence forecasters to call it a "super-storm" instead of a hurricane, and for an earthquake, something equally creative:
- the building was defective/you didn't have it inspected by our experts, so maybe the foundation already had cracks from the last EQ, in that case we can't pay the claim
- insurance only covers up to 5.0/6.0
- although it was reported as a 7.5, you live 4 miles away from the epicenter, meaning the EQ was likely below a 6.0, in which case your policy doesn't kick in/we'll only pay 30% of your claim
- the EQ cracked a water main/gas line, and most of the damage to your house is from the flood/fire, which isn't covered under EQ policy. try suing the insurance of the utility company.
- we determined that fracking is likely the cause of this quake, in which case it's manmade and not covered. you can sue the oil company though.
- we checked the seismometer and we dispute the USGS reporting that it was a 6.0/7.0/8.0/our geologist has published research saying that current methods of measuring earthquakes are in question. so although we don't need correct science to collect your premium, we do need perfect science to pay any claims. Or if you settle now, we'll pay 40% of your coverage or else you can try to sue us and maybe get paid 10 years from now
- we don't cover the specific region where all the earthquake damage occurred/that requires a different policy
- we only cover incidental/secondary damage, like clocks falling off the wall (which, of course, you must have a receipt for and will be paid minus depreciation and deductible). your policy doesn't cover utility line damage, structural damage, or earth-moving damage.
They'll take a hit in their ratings if they do. Insurance companies are rated by independent analysts such as A.M. Best, Moody's, and Standard and Poor's. Customers, especially large customers, research issuers before purchasing insurance, and a poorly-rated company is likely to get fewer customers.
