At the same time, earthquake insurance has been so radically constricted that today's typical policy offers tens of thousands of dollars less coverage than what was available before the Northridge earthquake.

It's a one-two punch that insurance companies say they needed to take to fend off huge risks that could bankrupt them.

But consumer advocates and some analysts of the insurance industry say the changes could deliver a knockout blow to homeowners' finances, exposing millions of people to the possibility of devastating losses. Because of the high propensity for natural disasters here, California homeowners are more likely to find themselves on the ropes.

"People don't realize what has been happening," said Brian Sullivan, editor of Property Insurance Report, a newsletter published in Laguna Niguel that tracks insurance industry trends nationwide. "Consumers have to be savvy about the changes that are happening and recognize that their policy isn't what it used to be."

Not surprisingly, insurance companies and their critics disagree about the magnitude of the potential problem.

A State Farm survey of its customers completed in 1996 found that 30% to 35% had less insurance than the company thought they needed. State Farm says it has worked diligently to boost those customers' coverage.

The Western Insurance Information Service, a Los Angeles-based industry trade group, says it can't quantify how many people are underinsured but that insurers are concerned enough about the problem and its legal and financial implications to support education and outreach programs.

"Absolutely there has been a problem, and the insurers acknowledge that," said spokeswoman Candysse Miller. "That's why we try and do promotions that help people understand what it means to be properly insured and how important that is."

Industry critics say the percentage of underinsured policyholders is closer to 65%--possibly as high as 85%--among the nation's 60 million homeowners. A recent study by Marshall & Swift, a Los Angeles building-cost consultant, estimates that at least 70% of residences nationwide are underinsured by an average of 35%. The company estimated the insurers could be collecting $4.5 billion a year in additional premiums--meaning homeowners could be underinsured by tens of billions of dollars.

"Homeowners are at enormous risk," said Greg Kaighn, a Sacramento attorney who represents homeowners against insurance companies. "Insurance companies have taken [the risk] and dumped it all back on the consumer."

Many say the extent of the problem won't be known until the next major disaster, when policyholders try to make claims and discover they don't have enough insurance.

Insurers and their opponents agree that the current situation arose from the collision of two trends: a gradual expansion in what insurance companies offered their customers, and an increase in the frequency of major disasters, in California and nationwide.

For years, homeowners insurance was hugely profitable, thanks to benign weather patterns that stretched from the 1960s to the early 1980s. Emboldened by their profits and eager for more business, insurers kept increasing the coverage limits on their policies, lowering deductibles and adding features such as guaranteed-replacement cost, which promised customers their homes would be rebuilt regardless of how much underlying insurance they had bought.

At the same time, consumers figured out that homeowners insurance "could be used not just for disasters, but if you dropped your camera on the garage floor," industry analyst Sullivan said. That also led to more claims and more exposure to risk.

"They were giving away too much insurance," Sullivan said. "It became an all-risk policy that covered everything, and that's bad business."

Furthermore, competition induced some agents to calculate low replacement values on homes so they could quote lower premiums and win more business, analysts said. For example, an agent might insure a $300,000 home for only $200,000 in order to lower the premium, then tell the homeowner the guaranteed-replacement clause would pick up the difference. So if the home burned down, the homeowner would indeed get a check for $300,000.

"A lot of times formulas [for replacement values] were winked at in the old times," Sullivan said. "You don't often have to replace a whole house, so what was the risk? Well, surprise."

Since 1989, the industry has been rocked by the 10 largest disasters in insurance history, including Hurricanes Andrew, Hugo and Opal; the Loma Prieta earthquake; massive winter storms in 1993; and the Northridge quake in 1994.