Wildfires And Homeowners Insurance - What Are The Lessons Learned
Fire Season 2009 Why Arent San Diegos 2007 Fire Survivors Back in Their Homes Yet?
By Ronald R. Reitz, CPPA, Quality Claims Management Company
It is now Wildfire Season in the Western US. In addition, this has been one of the worst drought years on record and water supplies are at an all-time low. With counties throughout the state already impacted by wildfires, this is shaping up to be another challenging fire season. And as more communities face the prospect of wildfire losses, it is important to examine the impediments to recovery faced by our own fire victims here in San Diego.
Out of the more than 1,700 San Diego City and County homes that were lost in 2007, we have found that only about 55% of the homeowners have obtained building permits and started their rebuild process. Many of those have not yet finished. I suspect that we will begin to see a large number of those projects completed near the end of the summer, hopefully in time for families to move back into their new home before the school season begins.
An additional 10 15% of the fire survivors are still in the process of obtaining approved building plans and will shortly be breaking ground. Of particular importance to them is the fact that as October 2009, approaches, so does the expiration of their Additional Living Expense (ALE) coverage. ALE provides reimbursement for extra living expenses incurred as the result of a covered loss, such as rent for temporary housing, furniture, utilities and mileage.
Insureds have up to two years of ALE benefits, as long as they actually need the two years. This was a positive change in coverage that arose out of the 2003 fires., when many insurance contracts limited ALE benefits to one year. Some insurers also attach a monetary limit while others allow up to Actual Amount Spent. However you define it, the termination of ALE benefits will be a hardship for those families who have not finished rebuilding.
The remaining 25 30% of the fire survivors are essentially categorized into three buckets. The first bucket is comprised of those that decided to move elsewhere, or to purchase a replacement property instead of rebuilding in the same location. The second bucket contains those people who have no insurance or are under-insured . The final bucket contains the people that have received settlements and have not taken any action yet..
What is Taking So Long?
There are many reasons why homeowners were not able to quickly rebuild their homes. Under insurance is one of the most common. According to Amy Bach, Executive Director, United Policyholders, Most people who lose a home in a natural disaster find out the hard way that theyre underinsured. After the 2007 wildfire in San Diego County, 75% of the victims found themselves underinsured by an average of $250,000.
United PolicyHolders recommends that you do not take your agent/insurers word for it that you are fully covered without confirming and preserving their promises in writing. Ask your agent or insurance company for confirmation that youre adequately insured for a total loss.
Another reason that many have not been able to rebuild is because the insurance companies lowballed the estimated amount it would take to rebuild. Low-balling often results when an insurer uses a computerized estimating program to come up with a low appraisal. When they use a human who factors the unique aspects of the house and local building codes and costs, they usually get more accurate numbers. Changes in local building and fire codes can substantially increase the cost of rebuilding as well.
When insureds receive a lowball estimate and realize it is not enough, they then must renegotiate with the insurance companies which often means bringing in legal professionals or public adjusters. This results in even more delays to the rebuilding process.
According to Valerie Brown, Project Coordinator at RB United, one of several affiliated non- profit fire recovery centers helping fire victims in San Diego County, We find three main reasons that people have not yet been able to rebuild. Many of them were uninsured, or underinsured and simply dont have the money. Others are looking to purchase instead of rebuilding, but have faced roadblocks to this in their negotiations with their insurance company However, the most common issue we find in our area is the long negotiation that occurs between what the contractors say it will take to re-build the house the scope of loss and the amount of money that the Insurance company is willing to provide for rebuilding.
Many times an insurer and insured disagree on the extent or scope of their loss. It is common for the insurer and insured to have different opinions on the coverages their insurance policy affords them. A Scope of Loss is a great tool for the insured to help narrow those differences.
What is a Scope of Loss?
The Scope of Loss is a detailed, line-item breakdown of all the items and services necessary to rebuild or repair a damaged property. One can refer generally to a Scope as the extent of the loss. Most commonly, a Scope of Loss will be broken down by room and trade so one can easily identify all damages that are being addressed. A scope of loss can be prepared by a public adjuster or by a suitably trained contractor. Many times, the adjuster works together with a contractor.
The Big catch for Replacement Homes
Those that have decided to purchase a replacement property have learned there is a catch to it imagine that!
If you do purchase a replacement house, some Insurance companies have taken the stance that they will not include payment for Building Code Upgrades.. They also may require the Insured to prove the replacement house was nearly the same as the house that was lost. That can be a very difficult proposition.
Some Insureds have been successful in recovering Code Upgrade benefits by buying a replacement home, then upgrading the homes amenities, such as windows, insulation, and sprinklers, to reflect current building codes. Additionally, I have seen some policies with language in them stipulating the insured must actually rebuild their house in order to recover their Extended Replacement Cost benefits, and others from the same carrier with different language. Take note that not every policy an insurer sells is the same as the next. One word can result in significant reductions of benefits in a policy.
Why Do Agents Under Insure?
Being under insured was an extremely large issue during the 2003 fires. In fact, it was probably the biggest single issue to arise. Insurance Commissioner John Garamendi held several hearings to learn more about the issue of under insurance. I attended some of those hearing and heard first-hand how some insurers purposely set limits below what was necessary to replace or rebuild a property that suffered a total loss. You may wonder what motive there would be for insurers to do so.
I learned there was a huge motive. You see, an insurer can limit their exposure by not insuring to full replacement cost value. I recall Commissioner Garamendi asking an insurer, I believe it was Allstate, if an insured asks for a quote of insurance with $300,000 of Coverage A limits how much would the premium be? The insurer responded with something like $1,000. Commissioner Garamendi then asked, How much would you charge if the limits were $500,000? The insurer then responded with something like $1,050. The Commissioner quickly figured it out.
The increase in premium was not directly tied to the percentage exposure at risk. This is why insurer would be incentivized to under insure you. There is another reason why an insurer would do this - to win or retain business. In order for the agent to secure or keep their client, they need to charge the most competitive price they can. If they can save the insured $50 or $100 per year in premium, they will most likely keep their business. After all, the chance of a wide-spread disaster affecting you is so remote, it will likely never occur.
So, the fires of 2007 came and went. And many homeowners found they do not necessarily have enough coverage to rebuild. This lack of coverage was not only because of insurers attempting to limit their exposure. Other factors include the fact that, increases in the cost of construction now makes it impossible or very difficult to rebuild their house to the original specifications.
Recent changes in the Building and Fire Codes may require that those rebuilding invest in substantial home and site upgrades that are not covered by insurance. Some of this increase can be traced back to the building demand following Hurricanes Katrina, Rita and Wilma. So even though they may have been adequately insured before costs went up and the building codes changed, now they are underinsured.
Regardless of whether you purchase your insurance from an agent or a broker, it is the Insureds, responsibility to determine the amount of insurance necessary. I have received numerous reports from our colleagues that many State Farm insureds were put through the long process of completing lengthy questionnaires in order to help assess whether the insured was under insured and who set those limits. I do not recall hearing of any case where State Farm accepted any liability. In every case I heard about, State Farm ultimately decided all responsibility rested with the insured.
While we do see various trends occur, each claim is a unique scenario. Each policy has its own nuances and as mentioned above, one word can drastically change a policy. I have participated in numerous claims settlement negotiations and have seen many cases where an insurer will agree to a certain settlement even though the policy language said something different. Sometimes what actually occurs is not the same as what the policy states. This can work out for the benefit of the insured or it can be to their detriment.
According to Jan Rasmussen, Outreach Coordinator at RB United, The amount one gets offered can vary according to the adjusters background and level of experience. She adds, There frequently can be inconsistencies in the way the same policy is interpreted by different adjusters at the same company, resulting in vastly different settlement offers. If you believe that your adjuster is being unreasonable or arbitrary, it is worth filing an appeal with the company, and, if necessary, a Request For Assistance with the Department of Insurance.
There is always one case that stands out. In this case, there was an insurer that only insured one house out of the nearly 2000 that were damaged. This insurer put their insured through the ringer making numerous unreasonable demands and unfounded accusations against the insureds. The last we heard they had not yet settled their claim and were in the process of seeking legal representation. It is a shame when an insurer reneges on the promise they made when they sold the policy, and the insured is forced to file suit to recover their damages.
There are ways to help prevent these insurance issues from affecting you.
Make sure you understand your insurance policy. Set up a time to meet with your agent to go over your existing policy to make sure you understand what is covered and what is not.
Confirm that you have the right amount and the right type of insurance for your property and your possessions. Periodically obtain a quote from a competing broker or agent to obtain a second opinion regarding your homes valuation and appropriate coverage, and pay attention to building costs in your area.
If you live in a rural or high fire prone area, talk to your Fire Marshall about any new building code requirements that might add to the cost of rebuilding, and ask your agent about increasing your coverage. If you do have a disaster, and feel you are not being treated fairly, contact a professional for help.
Talk to non profit organizations such as United PolicyHolders as well as numerous legal professionals and public adjusters who can help you. You may also with to file a complaint with your state Department of Insurance.
Ron Reitz spent ten years at GMAC-ResCap as Vice President of Insurance Services. Mr. Reitz was responsible for filing insurance claims on damaged vacant properties and participated in reviewing insurance requirements and making recommendations for changes to those requirements. Mr. Reitz is now President of Quality Claims Management Corporation which emphasizes filing claims on behalf of mortgage servicers, investors, homeowners and business owners in an effort to mitigate their insurance losses.
By Ronald R. Reitz, CPPA, Quality Claims Management Company
It is now Wildfire Season in the Western US. In addition, this has been one of the worst drought years on record and water supplies are at an all-time low. With counties throughout the state already impacted by wildfires, this is shaping up to be another challenging fire season. And as more communities face the prospect of wildfire losses, it is important to examine the impediments to recovery faced by our own fire victims here in San Diego.
Out of the more than 1,700 San Diego City and County homes that were lost in 2007, we have found that only about 55% of the homeowners have obtained building permits and started their rebuild process. Many of those have not yet finished. I suspect that we will begin to see a large number of those projects completed near the end of the summer, hopefully in time for families to move back into their new home before the school season begins.
An additional 10 15% of the fire survivors are still in the process of obtaining approved building plans and will shortly be breaking ground. Of particular importance to them is the fact that as October 2009, approaches, so does the expiration of their Additional Living Expense (ALE) coverage. ALE provides reimbursement for extra living expenses incurred as the result of a covered loss, such as rent for temporary housing, furniture, utilities and mileage.
Insureds have up to two years of ALE benefits, as long as they actually need the two years. This was a positive change in coverage that arose out of the 2003 fires., when many insurance contracts limited ALE benefits to one year. Some insurers also attach a monetary limit while others allow up to Actual Amount Spent. However you define it, the termination of ALE benefits will be a hardship for those families who have not finished rebuilding.
The remaining 25 30% of the fire survivors are essentially categorized into three buckets. The first bucket is comprised of those that decided to move elsewhere, or to purchase a replacement property instead of rebuilding in the same location. The second bucket contains those people who have no insurance or are under-insured . The final bucket contains the people that have received settlements and have not taken any action yet..
What is Taking So Long?
There are many reasons why homeowners were not able to quickly rebuild their homes. Under insurance is one of the most common. According to Amy Bach, Executive Director, United Policyholders, Most people who lose a home in a natural disaster find out the hard way that theyre underinsured. After the 2007 wildfire in San Diego County, 75% of the victims found themselves underinsured by an average of $250,000.
United PolicyHolders recommends that you do not take your agent/insurers word for it that you are fully covered without confirming and preserving their promises in writing. Ask your agent or insurance company for confirmation that youre adequately insured for a total loss.
Another reason that many have not been able to rebuild is because the insurance companies lowballed the estimated amount it would take to rebuild. Low-balling often results when an insurer uses a computerized estimating program to come up with a low appraisal. When they use a human who factors the unique aspects of the house and local building codes and costs, they usually get more accurate numbers. Changes in local building and fire codes can substantially increase the cost of rebuilding as well.
When insureds receive a lowball estimate and realize it is not enough, they then must renegotiate with the insurance companies which often means bringing in legal professionals or public adjusters. This results in even more delays to the rebuilding process.
According to Valerie Brown, Project Coordinator at RB United, one of several affiliated non- profit fire recovery centers helping fire victims in San Diego County, We find three main reasons that people have not yet been able to rebuild. Many of them were uninsured, or underinsured and simply dont have the money. Others are looking to purchase instead of rebuilding, but have faced roadblocks to this in their negotiations with their insurance company However, the most common issue we find in our area is the long negotiation that occurs between what the contractors say it will take to re-build the house the scope of loss and the amount of money that the Insurance company is willing to provide for rebuilding.
Many times an insurer and insured disagree on the extent or scope of their loss. It is common for the insurer and insured to have different opinions on the coverages their insurance policy affords them. A Scope of Loss is a great tool for the insured to help narrow those differences.
What is a Scope of Loss?
The Scope of Loss is a detailed, line-item breakdown of all the items and services necessary to rebuild or repair a damaged property. One can refer generally to a Scope as the extent of the loss. Most commonly, a Scope of Loss will be broken down by room and trade so one can easily identify all damages that are being addressed. A scope of loss can be prepared by a public adjuster or by a suitably trained contractor. Many times, the adjuster works together with a contractor.
The Big catch for Replacement Homes
Those that have decided to purchase a replacement property have learned there is a catch to it imagine that!
If you do purchase a replacement house, some Insurance companies have taken the stance that they will not include payment for Building Code Upgrades.. They also may require the Insured to prove the replacement house was nearly the same as the house that was lost. That can be a very difficult proposition.
Some Insureds have been successful in recovering Code Upgrade benefits by buying a replacement home, then upgrading the homes amenities, such as windows, insulation, and sprinklers, to reflect current building codes. Additionally, I have seen some policies with language in them stipulating the insured must actually rebuild their house in order to recover their Extended Replacement Cost benefits, and others from the same carrier with different language. Take note that not every policy an insurer sells is the same as the next. One word can result in significant reductions of benefits in a policy.
Why Do Agents Under Insure?
Being under insured was an extremely large issue during the 2003 fires. In fact, it was probably the biggest single issue to arise. Insurance Commissioner John Garamendi held several hearings to learn more about the issue of under insurance. I attended some of those hearing and heard first-hand how some insurers purposely set limits below what was necessary to replace or rebuild a property that suffered a total loss. You may wonder what motive there would be for insurers to do so.
I learned there was a huge motive. You see, an insurer can limit their exposure by not insuring to full replacement cost value. I recall Commissioner Garamendi asking an insurer, I believe it was Allstate, if an insured asks for a quote of insurance with $300,000 of Coverage A limits how much would the premium be? The insurer responded with something like $1,000. Commissioner Garamendi then asked, How much would you charge if the limits were $500,000? The insurer then responded with something like $1,050. The Commissioner quickly figured it out.
The increase in premium was not directly tied to the percentage exposure at risk. This is why insurer would be incentivized to under insure you. There is another reason why an insurer would do this - to win or retain business. In order for the agent to secure or keep their client, they need to charge the most competitive price they can. If they can save the insured $50 or $100 per year in premium, they will most likely keep their business. After all, the chance of a wide-spread disaster affecting you is so remote, it will likely never occur.
So, the fires of 2007 came and went. And many homeowners found they do not necessarily have enough coverage to rebuild. This lack of coverage was not only because of insurers attempting to limit their exposure. Other factors include the fact that, increases in the cost of construction now makes it impossible or very difficult to rebuild their house to the original specifications.
Recent changes in the Building and Fire Codes may require that those rebuilding invest in substantial home and site upgrades that are not covered by insurance. Some of this increase can be traced back to the building demand following Hurricanes Katrina, Rita and Wilma. So even though they may have been adequately insured before costs went up and the building codes changed, now they are underinsured.
Regardless of whether you purchase your insurance from an agent or a broker, it is the Insureds, responsibility to determine the amount of insurance necessary. I have received numerous reports from our colleagues that many State Farm insureds were put through the long process of completing lengthy questionnaires in order to help assess whether the insured was under insured and who set those limits. I do not recall hearing of any case where State Farm accepted any liability. In every case I heard about, State Farm ultimately decided all responsibility rested with the insured.
While we do see various trends occur, each claim is a unique scenario. Each policy has its own nuances and as mentioned above, one word can drastically change a policy. I have participated in numerous claims settlement negotiations and have seen many cases where an insurer will agree to a certain settlement even though the policy language said something different. Sometimes what actually occurs is not the same as what the policy states. This can work out for the benefit of the insured or it can be to their detriment.
According to Jan Rasmussen, Outreach Coordinator at RB United, The amount one gets offered can vary according to the adjusters background and level of experience. She adds, There frequently can be inconsistencies in the way the same policy is interpreted by different adjusters at the same company, resulting in vastly different settlement offers. If you believe that your adjuster is being unreasonable or arbitrary, it is worth filing an appeal with the company, and, if necessary, a Request For Assistance with the Department of Insurance.
There is always one case that stands out. In this case, there was an insurer that only insured one house out of the nearly 2000 that were damaged. This insurer put their insured through the ringer making numerous unreasonable demands and unfounded accusations against the insureds. The last we heard they had not yet settled their claim and were in the process of seeking legal representation. It is a shame when an insurer reneges on the promise they made when they sold the policy, and the insured is forced to file suit to recover their damages.
There are ways to help prevent these insurance issues from affecting you.
Make sure you understand your insurance policy. Set up a time to meet with your agent to go over your existing policy to make sure you understand what is covered and what is not.
Confirm that you have the right amount and the right type of insurance for your property and your possessions. Periodically obtain a quote from a competing broker or agent to obtain a second opinion regarding your homes valuation and appropriate coverage, and pay attention to building costs in your area.
If you live in a rural or high fire prone area, talk to your Fire Marshall about any new building code requirements that might add to the cost of rebuilding, and ask your agent about increasing your coverage. If you do have a disaster, and feel you are not being treated fairly, contact a professional for help.
Talk to non profit organizations such as United PolicyHolders as well as numerous legal professionals and public adjusters who can help you. You may also with to file a complaint with your state Department of Insurance.
Ron Reitz spent ten years at GMAC-ResCap as Vice President of Insurance Services. Mr. Reitz was responsible for filing insurance claims on damaged vacant properties and participated in reviewing insurance requirements and making recommendations for changes to those requirements. Mr. Reitz is now President of Quality Claims Management Corporation which emphasizes filing claims on behalf of mortgage servicers, investors, homeowners and business owners in an effort to mitigate their insurance losses.
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