Wildfire Took Your Home? Don’t Count on Insurance: Viewpoint

By Liam Denning | April 12, 2019

  • April 12, 2019 at 4:41 pm
    Peter J. Crosa says:
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    Having personally handled tens of thousands of claims across the country, I have encountered numerous occasions when a policyholder was under-insured. This phenomena of under-insurance often arises at the policy procurement stage. Property owners tend to compare insurance on a cost basis. Premium cost is primarily related to building value.

    When a consumer thinks a premium quote is “too high,” the first step for a competing producer is to consider whether he’s placed an unrealistic value on the building. Can the building value be lowered resulting in a lower premium quote?

    Albeit, there is some judgment in placing a value on a building but the uniformity and standards in building valuation software make it difficult to deliberately falsify the rebuild cost of any given building. Arbitrarily lowering the value of a building is not easy without the tacit approval or at least complicity of the building owner who is all too happy to say and do anything that will lower his premiums.

    After a loss, it’s the adjuster who bears the bad news. “You’re under-insured and there will be a penalty.” That’s when the property owner proclaims complete ignorance as to how the values were derived and broadcasts bad faith proclamations to the media.

  • April 22, 2019 at 5:02 pm
    Frank Lombard CPCU ARM says:
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    Under-insured or just improperly insured? How can there be a discussion of “under-insurance” without defining what “under-insurance” means?
    I’m from New England where guaranteed replacement cost (GRC) coverage is readily available for a nominal additional premium. The statement that “Standard policies haven’t offered GRC coverage for several decades” is simply not true. It is my understanding GRC endorsements are currently available to homeowners in all states. Maybe not offered by every insurer but available. The question should be why did these homeowners have “inadequate” amounts of insurance? Was GRC even offered? If not, why not?.
    To be eligible for replacement cost coverage, homeowners must maintain limits not less than 80% of the current cost to build a similar structure “prior to it sustaining any damage”. Insurers , despite policy terms and rate filings to the contrary, require homeowners to maintain limits consistent with the “reconstruction cost” of their home, a worst case scenario estimate of what it might cost to repair or rebuild the structure “after it has been damaged or destroyed”. Are insurers requiring homeowners to maintain higher limits than their policy terms require? And are homeowners being unfairly penalized for failing to maintain these “inflated” required limits?
    How does one determine how much it will cost to rebuild their home? Is it the cost to rebuild after a single location loss under ideal conditions or is it the cost to rebuild when an entire community is destroyed? There is a big difference between the two. Who is better prepared to address this potential difference between the cost to build before a loss occurs or the actual cost to rebuild following a loss, the multi-billion dollar insurance industry or Average Joe homeowner?

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