Garamendi Faults Inconsistencies in Home Coverage : Insurance: He calls premium increases excessive and cites disparities in calculating replacement costs.

Homeowners insurance in California is often unfair to consumers because of wide variations in how insurers calculate the cost of rebuilding a home following a fire or disaster, state Insurance Commissioner John Garamendi said Thursday.

Moreover, he said, some companies apply “excessive and inconsistent” yearly inflation figures to their policies, resulting in unauthorized increases in premiums. “The replacement cost and inflation cost factors for homeowners insurance are as mysterious and often as unfair as the scoring for Olympic figure skating,” Garamendi said in a statement.

Garamendi, a Democrat who is running for governor, pledged to investigate whether some companies’ rates ought to be lowered, adding, “There is a strong possibility that some premiums are far higher than they need to be.”

Garamendi also said he will develop new regulations requiring insurers to disclose their calculations to the Insurance Department and tell policyholders in their annual renewal notices how much the inflation and replacement-cost factors have increased their premiums.

Ever since the Jan. 17 Northridge quake, victims have been complaining to the Insurance Department, consumer advocates and the media that the policy limits on their homeowners coverage have ballooned dramatically in the last year or two, pushing up their earthquake insurance deductibles.

Garamendi’s statement was based on an Insurance Department study of the state’s 10 largest homeowners insurers, released Thursday, that shows wide variations in the way they calculate replacement cost and annual inflation.

Using an actual three-bedroom, 1,600-square-foot house in Canoga Park as a test case, the department generated replacement cost estimates that ranged from $94,000 to $205,000. Had such a home sustained quake damage, the standard 10% earthquake insurance deductible would have varied by as much as $11,100.

“This wide difference in assessments means many policyholders are paying too much or have an undervalued home,” Garamendi said.

David E. Fountain, a spokesman for the Personal Insurance Federation of California, a trade group, said insurers are damned if they do and damned if they don’t.

After the Oakland firestorm of 1991, Garamendi “complained and complained about underinsurance,” Fountain said.

After the fire, insurers rushed to adjust their coverages upward to reflect actual replacement costs, and now they’re being criticized for that, he said.

In his remarks Thursday, Garamendi was particularly critical of State Farm, California’s largest insurer.

The company used an inflation factor, supplied by a private consulting service, that pushed up home replacement costs 44% from 1988 through 1993, Garamendi said. Government economic data analyzed by Insurance Department investigators indicated that the actual inflation in construction costs was only 15% to 17% during those five years, he said.

A spokeswoman for State Farm said Thursday that the company did not obtain a copy of the Insurance Department study until late in the day and had not had time to analyze it.