Fire Victims Angry Over Policies

Faced with what he called an “astounding” number of complaints from burned-out homeowners, state Insurance Commissioner John Garamendi said Sunday he will push for regulations to end the chronic problem of underinsurance.

Garamendi said that of the hundreds of complaints filed with his office since last year’s disastrous fires in San Bernardino and San Diego counties, the most common comes from homeowners who are shocked to learn that their insurance policies do not provide enough money to rebuild their homes.

Garamendi said he did not trust the insurance industry to fix the problem and has asked lawyers at the Department of Insurance to determine whether his office can create rules requiring insurance companies to keep policyholders better informed about the limits of their coverage or whether legislation will be required.

“The insurance industry is a bunch of super conservatives,” Garamendi said. “They don’t move unless forced to move. This is a serious problem.”

According to a report released Sunday by the Department of Insurance, 676 complaints have been filed by people whose homes or other property were destroyed by the Old fire in San Bernardino or the Cedar and Paradise fires in San Diego County.

Those complaints represent 22% of policyholders who filed “total loss” claims with their insurance companies because of the fires.

The department’s normal complaint ratio is about 1% of claims filed.

This twentyfold increase in the percentage of complaints indicates that “a major problem has occurred in the market that must be investigated and addressed,” the report concluded. Claims of underinsurance make up 47% of the complaints.

Insurance industry representatives immediately disputed the report’s conclusions about underinsurance.

“We do not see it as a crisis as it’s being stated by the commissioner,” said Allstate spokesman Bob Daniels.

Based on a poll it conducted, the Insurance Information Network, an insurance trade group, asserted that 71% of Californians maintain that it is their responsibility to make sure their insurance policies are current with rebuilding costs, estimated to be increasing by 6% to 8% a year.

“Most Californians get it,” said Candysse Miller, the group’s executive director. “They know that it’s their home, not the insurer’s, not the agent’s, not anyone else’s.”

Sam Sorich, president of the Assn. of California Insurance Cos., a trade association, agreed that the main responsibility lies with the homeowner, not the company.

“Ultimately it’s up to the homeowner whether their coverage is adequate,” Sorich said. “Hey, an estimate [of replacement costs] is just that: an estimate.”

But Garamendi said it is unfair for insurance companies to expect homeowners to be experts at estimating the costs of labor, material and governmental processing. He noted that the industry has computer modeling that promises a high level of accuracy.

He said he suspects that insurance agents do not speak more candidly with policyholders about replacement costs for fear of losing customers when they mention the possibility of higher premiums to enhance the level of coverage.

In truth, Garamendi insists, full coverage would probably not significantly raise premiums because only a tiny fraction of insurance claims are for total loss and thus the insurance pool can easily withstand the added expense.

“The insurance industry is flapping its jaws without engaging its mind,” Garamendi said.

Insurance industry critics estimate that the percentage of underinsured homes may exceed 50%. Also, the Department of Forestry and Fire Protection estimates that 7.1 million California homes are in high-risk fire areas, 6 million of them in urban areas.

Some of the homeowners who have filed complaints may have been caught up in a change in how some companies market their coverage.

In recent years, some companies have replaced the “guaranteed replacement policy” with the similar-sounding but more limited “extended replacement policy.” The latter caps the “total loss” payment to a figure mentioned in the policy plus 20% to 25% of the fixed amount depending on certain conditions.

The insurance department report also provided a glimpse of the recovery from the Cedar and Paradise fires, which destroyed 2,691 residences and scorched 350,000 acres in a two-week rampage that was the most disastrous in California history.

Six percent of the homes have been replaced. In 25% of cases, building permits have been issued; in 55%, plans have been submitted to building inspectors in anticipation of a permit.

For the 316 homeowners who have complained about underinsurance, the Department of Insurance has helped get payments of more than policy limits in 50 cases; others are pending. For most policies, the one-year deadline for filing a lawsuit expires Thursday, the report said.