Do homeowners in Northern California have enough insurance to rebuild?Economic losses from the raging wildfires in Northern California could range between $3 billion and $6 billion, according to an October 12 report from catastrophe risk modeler firm RMS. Although that figure evaluates economic losses, it also reflects insured losses due to a high number of residential and non-residential structures covered by wildfire insurance.
Calculating the fire’s impact on residential, industrial, and commercial properties, RMS based its estimate on claims resulting from buildings and items lost or damaged because of the fire as well as long-term disruption to local businesses. Since the fire continues to burn, RMS cautions that its estimate is preliminary. A more recent update from the California Department of Insurance reports that more than 5,000 property claims have been submitted and that roughly 1,000 vehicles have been damaged.
Expedite the Claims Process
As firefighters attempt to contain the inferno, insurance companies and their representatives have begun to help policyholders process claims. Several insurers have heeded a directive from California Insurance Commissioner Dave Jones to speed up claim certain filing procedures so that clients can promptly receive insurance payouts.
Jones recommends that insurers provide advance payment to policyholders for up to four months of additional living expenses, immediately cover at least 25% of a policy’s limits for personal property loss, and speed up the rebuilding process by accelerating debris removal. Jones further asked insurers to expedite payouts for damaged or destroyed vehicles and suspend late fees for 30 days for policyholders unable to receive renewals notices in the mail.
Among the major insurance companies agreeing to Jones’s mandate are Allstate Insurance Group, Farmers Insurance Group; Hartford Fire & Casualty, Liberty Mutual/Safeco, State Farm Mutual Group, and Travelers. Allstate issued a statement urging policyholders to visit its claim office in Santa Rosa, file a claim online, or call its claim phone line. A Los Angeles Times article adds that State Farm and USAA have stationed mobile units in the area to help policyholders.
Are Homes Underinsured?
Insurance agents working in Northern California can aid their clients by filing claims quickly so that they obtain the benefits outlined in Commissioner Jones’s notice, but agents outside of California should take this opportunity to review their clients’ homeowner policies.
Since many homeowner policies account only for a home’s value at the time the policy was issued, they may not reflect upgrades made to the home since that date. The value stated in the policy isn’t the same as replacement cost, however, which could outstrip the home’s current worth due to rising prices for building materials and construction labor. New building codes could also drive the replacement cost higher.
As it stands, many homeowners may not carry enough insurance on their houses. According to data firm CoreLogic, about 60% of homes in the U.S. are underinsured by an average of 20%. As a result, a home valued at $500,000, for example, would only be insured for $400,000 after a disaster, well under the $450,000 needed to rebuild a home in the significantly damaged Napa and Sonoma Counties.
In addition to continually updating their home insurance clients’ coverage provisions and amounts, agents can suggest that their clients purchase an extended replacement cost endorsement, which pays for unexpected costs overruns in the rebuilding process. Additional coverage for upgrading electrical systems as mandated by new municipal building codes is also available.
As in any disaster, agents should ensure that their clients document the value of items lost and keep any receipts from emergency repairs or living expenses. Allstate offers a free Digital Locker app where policyholders can upload a list of their belongings, the model numbers of those items, and the stores where they were bought. This gives insurance adjusters up-to-date reimbursement costs.
Use the wildfires as an opportunity to discuss with your clients the coverages in their homeowner policies and whether the policy needs to be updated. Disasters can strike anywhere at anytime, so it’s best to have your clients prepared with the right insurance coverage.