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A reader and I have been discussing his travails since his house burned to the ground in the October fires. The struggle he’s had with the insurance companies has made him an expert on the latest going-ons, and he shares them today – mostly the concerns about being under-insured.  I always thought that I had ‘guaranteed replacement cost’ in my policy, but that has gone away:

Attached is the appellate court’s ruling (attached PDF). Like I said, if you haven’t already, it’s really important to call your agent and make sure you have enough coverage. It is amazing, I’ve talked to dozens of people and everyone thinks they have sufficient coverage. I think people are scared to talk to their agent because their premiums will go up. It’s not always the case. I convinced my neighbor who didn’t lose his house to call his agent and he got his coverage doubled and his premium actually went down. Like a lot of things the first $250-$300K is the most expensive part of insurance … the last $700K is cheap!

The insurance industry admits that nationwide 65% of home owners are underinsured by an average of 30%.

 http://www.realestatejournal.com/buysell/taxesandinsurance/20060829-mcqueen.html

http://moneycentral.msn.com/content/Insurance/Insureyourhome/P35340.asp

A quick way to see is to run a quick Marshall and Swift

www.accucoverage.com

I’ve got a full version of the software package and can run a very thorough “appraisal” and let someone know just how bad their situation is. The Marshall and Swift software is what the insurance agents use to determine your policy limits. BTW, they use another package to decide what your house was worth after it burns down (Xatimate) … Guess which one is more conservative in it’s estimates?

The people I’ve been working with in Southern CA place the underinsured number at 95% locally. Sounds really high, but they are working very close with the “fire victims”. I can’t believe it’s only the people who lost their homes that are underinsured … I think you just don’t realize it until you need it (i.e. it’s too late).

Insurance companies are like bookies. The chances of you having a total loss are <1%. But the insurance companies are risk adverse and they want market share, so they want to underinsure you. They want the most expensive part of your policy (the first $250K or so) and then after that it’s all risk, so they really don’t want that part. They also layoff their liability on the secondary market (just like a bookie) so they can mitigate risk. Funny how you hear that insurance companies are going to go belly up after a Witch fire or a Katrina. Last year alone CA homeowners premiums were $7B. http://www.insurancecoverageblog.com/archives/first-party-insurance-southern-california-wildfires-and-insurance-claims.html

On average the insurance industry only pays out 33 cents on the dollar http://www.insurancejournal.com/news/west/2006/06/30/70010.htm

… pretty good racket. With 1 in 8 people in this country living in CA and profit margins like that, they aren’t pulling out of CA and they certainly aren’t going broke. Even a year after one of the biggest disaster in this country (Katrina) the insurance companies had record profits. http://www.pantagraph.com/articles/2007/04/07/money/doc4618639ef29c3204754284.txt

Also, just for your own edification, all insurance companies are not created equal. All State is far and away the worst (yes I do have data to back up that statement). According to one well respected Bad Faith Lawyer “they are the only company out there that will spend $20M in lawyer’s fees to keep from paying $1M over policy limits”. State Farm is pretty bad, but not as bad as All State … every year they get a little closer to All States model. In this fire, Farmer’s has been the best of the big 3, but I guess in other fires they weren’t so good … not sure what that means.

USAA and AAA are both seen as excellent and fair. I’ve also heard good things about Liberty Mutual , Travelers and The Hartford. Chubb is suppose to be very good, but also very expensive.

Two organizations that are out there to help people are:

www.carehelp.org (these guys are incredible)

and

www.unitedpolicyholders.org

Trust me, no one is prepared for this sort of thing, and I’ve seen grown professionals (Doctors and Lawyers) totally devastated by the over whelming situation this places you and your family in. In the last fire (Cedar) a couple of people committed suicide and there were numerous divorces. There are organizations out there that can help and do a good job. Everything from insurance problems to counseling … I’m not a big counseling guy, but if you need it there are several support groups.

A future blog topic that you might be interested in is the class action vs SDG&E … it’s going to be huge. All of the insurance companies are trying to retain subrogate rights and they are going to sue them for well over a Billion Dollars. It’s pretty much common knowledge that SDG&E started 2-3 of the fires and it looks like the lawyers have dug up a mound of evidence showing neglect.

This is going to be a real polarizing topic. As we all know SDG&E will just pass the losses off to their customers. I’ve heard that SDG&E has a billion dollars of liability coverage … I’ve also been told (by one of the lead lawyers in the class action) that SDG&E made a cooperate decision to not have any liability coverage … sounds crazy, but he should know … he sued them back in circa 2004 for the fabricated rolling blackouts and won $500M (ruling was something like $24B, but they settled on $500+Meg).

I think the pending class action will make that decision look like found change.

http://www.allbusiness.com/legal/trial-procedure-summary-judgment/5536318-1.html

People who were affected will be looking for more (or in some cases some) money, people who weren’t affected will take SDG&E’s side and say “you shouldn’t live in the sticks”. Some people who were really underinsured will only be able to move on if they get some money from the class action.

Both sides probably have a valid argument, but the last time I looked Rancho Bernardo isn’t exactly the sticks. One of these years we’re going to have a fire that will burn to the pacific (ala Malibu last year) and it is going to be devastating on a whole new scale.

Posted on Saturday, May 31st, 2008 at 8:08 PM in Uncategorized | 5 Comments » |  Print You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.