The Shaky Ground Beneath Illinois: Why Your Standard Business Insurance Is Not Enough
When most people think of earthquake risk, they picture California's San Andreas Fault. Few realize that some of the most powerful earthquakes in American history occurred in the Midwest. The New Madrid Seismic Zone, which affects portions of Illinois, Missouri, Kentucky, Tennessee, and Arkansas, produced a series of earthquakes in 1811-1812 that remain among the strongest ever recorded in North America. Understanding geographic risks—and the insurance implications—is essential for real estate investors whose properties may face these often-overlooked perils.
Standard commercial property insurance policies explicitly exclude earthquake damage. This exclusion means that buildings, equipment, inventory, and business income lost due to seismic events receive zero coverage unless you've purchased separate earthquake insurance. For properties in or near the New Madrid zone, this gap represents a significant unaddressed risk.
Understanding the New Madrid Seismic Zone
The New Madrid Seismic Zone stretches from northeastern Arkansas through southeastern Missouri, western Tennessee and Kentucky, and into southern Illinois. The zone produces thousands of small earthquakes annually and remains capable of generating major seismic events.
Historical Context:
- 1811-1812 earthquakes estimated at magnitude 7.5-8.0
- Affected area of approximately 50,000 square miles
- Changed the course of the Mississippi River
- Felt as far away as Boston and Washington D.C.
- USGS estimates 25-40% chance of magnitude 6.0+ earthquake in next 50 years
Illinois Communities at Risk
Southern Illinois faces the highest risk within the state, but moderate seismic hazards extend throughout much of central and western Illinois. Communities particularly affected include:
- Cairo, Carbondale, and southern Illinois cities near the fault zone
- St. Louis metro area including East St. Louis and surrounding communities
- Springfield and central Illinois (moderate risk)
- Chicago experiences lower but non-zero seismic risk
Why Standard Policies Exclude Earthquakes
Insurance works by spreading risk across many policyholders. Most risks—fires, theft, windstorm damage—affect individual properties randomly. Earthquakes, however, cause catastrophic damage across entire regions simultaneously. A major New Madrid event could damage millions of properties at once, potentially exceeding the capacity of insurers to pay claims. This concentrated, catastrophic risk requires specialized coverage with pricing and terms designed specifically for seismic exposure.
Decoding Earthquake Insurance: What Facility Managers in the New Madrid Zone Must Know
How Earthquake Insurance Works
Earthquake insurance provides coverage for damage caused by seismic events. Unlike standard property insurance, earthquake policies typically feature:
- Percentage Deductibles: Rather than dollar amounts, deductibles are typically 5-25% of coverage limits
- Separate Policy or Endorsement: May be standalone policy or added to existing coverage
- Building and Contents Coverage: Separate limits and deductibles may apply
- Business Income Coverage: Loss of income due to earthquake damage
- Building Ordinance Coverage: Code-required upgrades during repairs
Understanding Percentage Deductibles
Earthquake deductibles work differently than standard insurance. A 10% deductible on a building insured for $1 million means you pay the first $100,000 of any claim. This substantial retention reflects the catastrophic nature of earthquake risk and makes the coverage affordable while ensuring policyholders share in the risk.
Deductible Strategies:
- Higher deductibles significantly reduce premiums
- Consider your ability to absorb the deductible if a loss occurs
- Building and contents may have separate deductibles
- Some policies offer declining deductibles as rewards for no claims
Coverage Considerations for Commercial Properties
Commercial earthquake policies should address several key exposures:
Building Coverage:
- Structural damage to foundation, walls, and roof
- Damage to permanent fixtures and building systems
- Demolition costs if building is condemned
- Debris removal expenses
Business Personal Property:
- Equipment, inventory, and furnishings
- Electronic data restoration
- Property of others in your care
Business Income and Extra Expense:
- Lost income during repair period
- Extra costs to continue operations
- Extended coverage for slow recovery
Pricing Factors
Earthquake insurance premiums depend on several factors:
- Location: Distance from fault zones and local soil conditions
- Construction Type: Wood frame, masonry, reinforced concrete, steel
- Building Age: Older buildings without seismic retrofitting cost more
- Foundation Type: Some foundations perform better in earthquakes
- Number of Stories: Taller buildings face different risks
- Deductible Selected: Higher deductibles reduce premiums
Beyond Structural Damage: Protecting Your Critical Energy Assets and Preventing Costly Downtime
Equipment and Systems Vulnerability
Earthquakes damage more than buildings. Building systems, equipment, and utilities often suffer significant damage even when structures remain standing. For commercial properties, these non-structural losses can exceed structural damage costs.
Vulnerable Systems:
- HVAC equipment and ductwork
- Electrical panels and wiring
- Plumbing and water heaters
- Fire suppression systems
- Elevators and escalators
- Computer and communication systems
Business Interruption Considerations
A major earthquake could disrupt business operations for months. Consider the following business interruption exposures:
- Direct Physical Damage: Your building may be unsafe to occupy
- Utility Disruption: Power, water, and telecommunications may be unavailable
- Access Issues: Roads and bridges may be damaged
- Supply Chain Disruption: Suppliers and customers may be affected
- Workforce Displacement: Employees may be unable to work
Risk Mitigation Strategies
While insurance provides financial protection, physical risk mitigation can prevent damage and may reduce insurance costs:
Structural Improvements:
- Seismic retrofitting of older buildings
- Foundation upgrades and reinforcement
- Unreinforced masonry building improvements
- Flexible connections for utilities entering buildings
Non-Structural Mitigation:
- Anchor heavy equipment and furnishings
- Secure water heaters and HVAC equipment
- Install automatic gas shutoff valves
- Brace overhead items and suspended ceilings
- Protect computer equipment and data
Emergency Planning
Comprehensive emergency planning reduces both human and financial impact of earthquakes:
- Develop and practice evacuation procedures
- Maintain emergency supplies and equipment
- Create business continuity plans
- Establish alternative operating locations
- Document your property for insurance purposes
Your Illinois Commercial Property Resilience Checklist: 5 Steps to Mitigate Geographic Risk Today
Step 1: Assess Your Risk
- Determine your property's proximity to the New Madrid Seismic Zone
- Review USGS seismic hazard maps for your specific location
- Understand local soil conditions that may amplify shaking
- Identify building characteristics that affect vulnerability
- Consider other geographic risks (flooding, severe weather)
Step 2: Review Current Coverage
- Confirm your standard policy excludes earthquake damage
- Check for any earthquake sublimits or partial coverage
- Review your business interruption coverage
- Assess coverage for building systems and equipment
- Verify flood insurance is in place if applicable
Step 3: Get Earthquake Insurance Quotes
- Request quotes from multiple carriers
- Compare deductible options and their premium impact
- Ensure adequate limits for building, contents, and income
- Consider business income waiting periods
- Review policy exclusions and conditions
Step 4: Implement Risk Mitigation
- Conduct a professional seismic assessment of your building
- Prioritize cost-effective retrofitting improvements
- Secure non-structural elements
- Update emergency plans and procedures
- Train staff on earthquake response
Step 5: Create a Recovery Plan
- Document your property with photos and inventories
- Maintain copies of important documents off-site
- Identify contractors for emergency repairs
- Establish communication plans for employees and tenants
- Review and update plans annually
Other Geographic Considerations
While earthquake risk is often overlooked in Illinois, other geographic risks require attention:
Flood Risk: Properties near rivers, lakes, or in low-lying areas face flood exposure. Standard property insurance excludes flood damage; separate flood insurance through NFIP or private markets is required.
Severe Weather: Illinois experiences tornadoes, severe thunderstorms, and damaging winds. These perils are typically covered by standard property insurance, but review your limits and deductibles.
Winter Weather: Heavy snow, ice dams, and frozen pipes cause significant property damage. Ensure your coverage addresses these common Illinois perils.
Conclusion: Addressing the Overlooked Risks
Geographic risks represent some of the most significant yet most commonly overlooked exposures for real estate investors. The combination of explicit policy exclusions and the "it won't happen here" mentality leaves many properties dangerously underinsured. For Illinois investors, understanding the New Madrid Seismic Zone risk and obtaining appropriate coverage is prudent risk management.
The cost of earthquake insurance in the Midwest remains relatively affordable compared to coastal areas, making protection accessible for most investors. Combined with reasonable risk mitigation measures, comprehensive coverage ensures your real estate investments can survive even catastrophic geographic events.
For more on specialized coverage needs, explore our guide to sewer backup coverage and learn about building ordinance coverage for comprehensive property protection.