A recent hearing before the California Board of Equalization has highlighted the issue of underinsurance among California wildfire survivors. The hearing, which followed an investigation by The San Francisco Chronicle, revealed the severity of the problem and potential solutions.
The Underinsurance Problem
Experts testified that insurance companies often provide materially misleading estimates to their clients. ‘I think that’s simply fraud,’ said Matt Everson, a construction expert working with hundreds of Los Angeles wildfire survivors.
Causes and Consequences
Underinsurance occurs when a person’s insurance coverage is too low to rebuild their home. Surveys have shown that between 40% to 80% of wildfire survivors are underinsured. ‘It’s not a new problem. It’s a stubborn problem,’ said Amy Bach, executive director of United Policyholders.
A preliminary analysis of over 60,000 California claims found that two-thirds of policyholders who lost their homes were underinsured, with an average underinsurance rate of 34%. Insurance industry representatives did not attend the hearing but submitted a letter stating that underinsurance can result from homeowners providing outdated property information or failing to update their coverage limits.
Proposed Solutions
Experts suggested several solutions to address underinsurance:
- Requiring insurers to disclose that their rebuilding estimates may not be accurate
- Mandating home insurance companies to offer customers at least 50% extended replacement cost coverage
- Altering California Insurance Code to require insurers to cover all costs associated with rebuilding to modern building codes
- Creating a public database of reconstruction costs based on actual rebuilding expenses after wildfires
The hearing revealed that even Vice Chair Sally Lieber discovered she was likely underinsured after hearing testimony from Everson. Her current policy covers her home at $297 per square foot, while the estimated rebuild cost is about $800 per square foot.
The California Board of Equalization plans to continue investigating the issue and potentially partner with state lawmakers in the next legislative session.
