The earthquake that struck northern California early Sunday will lead to economic losses of as much as $4 billion, fueled by damaged wineries and shuttered businesses that rely on tourists.
Insurers will probably cover about $2.1 billion, according to an estimate from Kinetic Analysis Corp., which projected total losses of about twice that sum. Costs borne by the industry may be limited because many homeowners don’t have earthquake coverage, according to the Insurance Information Institute.
“The main source of claims could well be commercial claims, those coming from wineries and vineyards and other commercial interests,” Robert Hartwig, the institute’s president, said in an interview today. “It will take a while for the business owners to sort this out.”
The temblor, the strongest in Northern California in 25 years, hit the Napa region north of San Francisco at about 3:20 a.m. local time yesterday, crumpling historic buildings, cracking roads and injuring more than 200 people. The quake left many in the region without power and water, and California Governor Jerry Brown declared the zone a disaster area.
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In Napa, debris and broken glass littered the sidewalks in front of restaurants, wine stores, and antique shops. The city updated the number of buildings “red-tagged” as being uninhabitable to 33, including the Napa Senior Center. PG&E Corp. crews checked about 100 reports of gas leaks and odor and determined that there are no more leaks, according to an update posted to the city’s website late yesterday.
Catastrophe-modeler Eqecat estimated there would be $1 billion of insured losses, with as much as half that figure coming from residential claims. The cost for the industry could climb because of coverage that protects commercial policyholders from lost revenue, Eqecat said. Such losses have fueled higher- than-expected claims from other recent catastrophes including superstorm Sandy in 2012.
The Napa region “is dotted with upscale and luxury boutique hotels, spas and inns,” Eqecat said. “Business interruption losses are a major concern.”
The upcoming three-day weekend, which includes the Labor Day holiday on Monday Sept. 1, is a major travel period in the U.S. About 34.7 million Americans will take a trip at least 50 miles (80 kilometers) from home next weekend, the highest figure for the holiday since 2008, according to a projection from AAA.
“I don’t know how interrupted the winery tourism season is going to be,” Meyer Shields, an analyst at Keefe, Bruyette & Woods, said by phone. For an insurer dealing with a commercial customer, “the question is, ‘how interrupted are your operations,’ and that’s completely unknowable at this point.”
The Napa-Sonoma area is home to one of California’s best- known wine-growing regions. Napa County has 789 licensed wineries which had sales of $5.5 billion in 2011, according to the Napa Valley Vintners Association, a trade group. “It was a significant earthquake” city manager Mike Parness said in an interview. “Given the magnitude and the reports of damage, this is going to take some time to get back from.”