{"id":895765,"date":"2019-04-18T13:28:23","date_gmt":"2019-04-18T19:28:23","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=895765"},"modified":"2019-04-18T13:28:31","modified_gmt":"2019-04-18T19:28:31","slug":"wildfire-took-home-dont-count-on-insurance","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/wildfire-took-home-dont-count-on-insurance\/","title":{"rendered":"Wildfire Took Your Home? Don\u2019t Count on Insurance: Viewpoint"},"content":{"rendered":"\n

Liam Denning | Claims Journal<\/a> | April 12, 2019<\/p>\n\n\n\n

Own a home? No doubt you\u2019ve insured it. Very sensible of you. But if that home were, say, burned to the ground, then your insurance company probably wouldn\u2019t cover the cost of rebuilding it.<\/p>\n\n\n\n

Don\u2019t feel too bad, though. It\u2019s only partly your fault.<\/p>\n\n\n\n

Two-thirds of California wildfire victims are under-insured, according to Amy Bach, executive director of consumer advocacy group United Policyholders, speaking at a recent meeting of governor Gavin Newsom\u2019s wildfire commission, held in Santa Rosa. Shocking as that figure seems, it comports with anecdotes I picked up reporting on the aftermath of the recent wildfires earlier this year. Meanwhile, Sarah Paulson of Kevin Paulson Insurance Agency Inc. in San Diego, estimates maybe 60 percent of policyholders are under-insured.<\/p>\n\n\n\n

Now a new study titled \u201cMinding the Protection Gap,\u201d just published in the Connecticut Insurance Law Journal, concludes the prevalence of under-insurance among American homeowners might be closer to 80 percent. Kenneth Klein, a professor at California Western School of Law, bases that estimate partly on a report from the California Department of Insurance, prepared in the wake of the 2007 wildfires, that recently became public record. Remarkably, this found that even when homeowners had purchased extended coverage, 57 percent of such policies fell short.<\/p>\n\n\n\n

Summing up his study over the phone, Klein calls homeowner insurance \u201ca really weird market; people think they bought a Cadillac when they really bought a Yugo.\u201d<\/p>\n\n\n\n

By and large, homeowners think they do have adequate coverage in the event of a catastrophe \u2013 and that\u2019s where they take a share of the blame. Standard policies haven\u2019t offered \u201cguaranteed replacement coverage\u201d for several decades. But unless the homeowner takes the time to read the mind-numbing policy documents or ask the right questions, they generally assume they\u2019re good if the sky falls.<\/p>\n\n\n\n

Before piling onto this feckless homeowner, though, ask yourself a question: Do you know how much it would cost to rebuild your home? Didn\u2019t think so.<\/p>\n\n\n\n

Most likely, you\u2019re relying on an estimate from your insurance agent. Typically, those are derived from sophisticated software tools such as Verisk Analytics Inc.\u2019s 360Value or CoreLogic Inc.\u2019s RCT. Insurance is the original big-data business, compiling myriad items of information to judge probabilities and costs; these tools are immense databases of such things as local labor rates, materials prices, storage costs and many other line items.<\/p>\n\n\n\n

No software can accurately predict every contingency, though; especially if, for example, a wildfire burns down a whole neighborhood and surge pricing kicks in. More importantly, software doesn\u2019t write insurance, companies do. And the incentives in homeowner insurance tend to skew one way.<\/p>\n\n\n\n

Only a small proportion of homes are sold each year, capping the size of the market for policies. Customers tend to be ignorant of the true cost of reconstruction. And when disputes arise, courts tend to effectively side with the insurance provider \u2013 after all, the homeowner signed up for the coverage stipulated in their contract. In short, the homeowner tends to bear all the risk of under-insurance while usually being ignorant of that risk. Plus, thinking catastrophe a very remote possibility, they\u2019re more motivated to keep their monthly insurance bill low than to cure their ignorance.<\/p>\n\n\n\n

So there can be little incentive for an insurance provider to invest time and money in a more-thorough assessment of a home\u2019s particular risks. It\u2019s tempting to instead enter fewer parameters to the software tools to estimate coverage and simply quote the most competitive premium they can. Klein ran an experiment on his own home, getting replacement-cost estimates from six insurers and two software tools, involving different levels of detail. They ranged from $512,000 to more than $1.1 million.<\/p>\n\n\n\n

One way of addressing this problem is better-educating the customer, such as with tools alerting them to potential under-insurance. Meanwhile, Klein recommends requiring insurers to quote a price for guaranteed replacement coverage. Would those premiums be higher? Probably much higher, although providers could also compete on them. More importantly, they would signal to homeowners the true cost of protecting their home \u2013 and they could then choose to accept it or go with a lower quote for standard insurance, with the clear understanding they bear the risk of less-than-adequate coverage. \u201cThis will reconnect risk creation and risk allocation,\u201d Klein writes.<\/p>\n\n\n\n

California\u2019s wildfires didn\u2019t create this market failure; just revealed it. The enormous claims arising from the past two wildfire seasons \u2013 some $25 billion \u2013 are having an impact on pricing and availability already. At that same commission meeting in Santa Rosa, Joel Laucher, chief deputy commissioner of the California Department of Insurance, said complaints about higher premiums or difficulty renewing coverage in the highest-risk counties have jumped by 224 percent and 573 percent, respectively, since 2010. Meanwhile, over the past five years, there has been a 51 percent increase in policies written for homes in wildfire-prone areas under California\u2019s FAIR program \u2013 insurance so bare-bones the website states up top it should only be used as \u201ca last resort.\u201d<\/p>\n\n\n\n

In many respects, the wildfires expose the true costs of climate change and how they intersect with people\u2019s choices about where and how they live; choices often made out of necessity or made at a time when phrases like \u201cglobal warming\u201d seemed utterly abstract. Mitigating wildfire risk is, of course, central to addressing this, but so is reform of insurance, society\u2019s ingenious method of pooling risk. Pushing the industry to provide better incentives for, say, hardening homes and communities must be a priority for California \u2013 and, indeed, any other state facing rising risks from a changing climate. Making those risks, and their costs, crystal clear to consumers would be a good start.<\/p>\n\n\n\n


<\/p>\n","protected":false},"excerpt":{"rendered":"

Liam Denning | Claims Journal | April 12, 2019 Own a home? No doubt you\u2019ve insured it. Very sensible of you. But if that home were, say, burned to the ground, then your insurance company probably wouldn\u2019t cover the cost of rebuilding it. Don\u2019t feel too bad, though. It\u2019s only partly your fault. Two-thirds of… Continue reading Wildfire Took Your Home? Don\u2019t Count on Insurance: Viewpoint<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9914],"tags":[9895,88,23,9943],"class_list":["post-895765","post","type-post","status-publish","format-standard","hentry","category-insurance-coverage","tag-advise-consult","tag-california","tag-insurance-coverage","tag-wildfires","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nWildfire Took Your Home? 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