Earthquake deductible buy-down policies. Are they worth it?

Insurers are offering earthquake deductible buy-down policies as a way to help policyholders cover costs incurred up to the level of their policy deductibles.

Some see the potential of this product as an innovative way to help consumers overcome high earthquake deductibles.

But others caution the devil is in the details. Some brokers suggest earthquake buy-down policies may be of limited value because they aren’t triggered unless damage exceeds deductible levels in the underlying quake policy.

A deductible buy-down insurance policy covers a person for expenses that fall under an earthquake deductible. So, for example, if a person had a $100,000 earthquake deductible on their policy, and they also purchased a deductible buy-down policy with a $75,000 limit, that means the insurer would cover up to $75,000 worth of expenses that fall under the policyholder’s $100,000 earthquake deductible.

The topic of deductible buy-down policies came up after a presentation by Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction, at the Insurance Brokers Association of B.C.’s 2025 AGM and Leaders’ Conference, held in Whistler, B.C., in June.

Kovacs said the ICLR recently modelled a shallow, Magnitude 7.5 earthquake hitting near Vancouver’s City Hall. The computer simulation showed that if such an earthquake were to hit, only 8% of earthquake insurance policyholders in the Lower Mainland would likely receive a cheque from their insurers. In part, this is due to high earthquake policy deductibles.

Thirty-six percent of Lower Mainland policyholders would see moderate damage, Kovacs noted in his presentation. But that loss would be less than the deductible on their policy, meaning they would not receive an insurance claim payment.

After Kovacs’s presentation, one broker in the audience asked about the deductible buy-down option.

“I look forward to seeing the detailed wording. I had been…hoping that this kind of product would come to the market and I’m excited that it has,” Kovacs replied. “We did a survey of several thousand homeowners and found remarkable variation, where some homeowners were much more interested in that kind of opportunity.

“They understood that the high deductibles were making them very uncomfortable, and they were looking for an alternative they couldn’t find in the market. And now that there is one, we think a meaningful number of people in the province will find that dialogue interesting.

“But I haven’t seen the product. I don’t know what the pricing is. I don’t know the [details about] it. But to put that [product] in the market, for me, is very exciting and really intriguing. It’s a further demonstration of innovation in our industry, to identify a need and step in.”

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The broker who asked the question then said he had experience looking at some of the wordings. He wondered if some of the restrictive terms and conditions watered down the value of the product in smaller quake situations, where the damage isn’t high enough to trigger the earthquake policies.  

“My understanding of how those products are working is that it’s a deductible buy-down,” he said. “But the deductible doesn’t get triggered unless the underlying policy gets to a point where the damage is beyond the deductible.

“So, if I have damage that’s below the deductible, there’s no underlying coverage triggered under my policy, so then the deductible buy-down doesn’t get triggered.

“At least that’s my review of the policy wordings for the products I’ve seen. So, I think we’re selling products to customers where they think they’ve got coverage of that gap, but they really don’t.”