SAN FRANCISCO — As the Southern California fires incinerate hundreds of homes, insurers are promising to come to the financial rescue with crews of adjusters prepared to settle claims fairly and quickly.
But industry watchdogs are skeptical, worrying the aftermath will cause even more stress for fire victims who thought they were fully insured for their destroyed property, only to have their claims rejected.
“I am absolutely certain that two weeks from now there will be many frustrated and angry policyholders in Southern California because they can’t understand what is and isn’t covered,” California Insurance Commissioner John Garamendi said Tuesday.
Garamendi is providing fire victims with insurance tips on his regulatory agency’s Web site, http://www.insurance.ca.gov. He also plans to hold workshops in the fire-charred communities.
Insurance officials believe most Southern California fire claims will be amicably resolved, although they concede some disagreements are inevitable, primarily over the value of the household contents destroyed in the fires.
“We want to pay for everything we owe, but we don’t want to be in a situation where everyone is claiming they owned a Picasso,” said Dan Dunmoyer, president of the Personal Insurance Federation of California. The trade group represents carriers that sell about 40 percent of California’s homeowners coverage.
With more than 1,500 homes already destroyed, the Southern California blaze has caused the worst fire damage since nearly 3,000 homes were lost in a 1991 inferno that swept through the Oakland hills.
The Southern California fires aren’t expected to be as expensive for insurers as the Oakland hills catastrophe, which saddled the industry with a $1.7 billion tab.
As of Tuesday, the estimated damage covered by insurance in Southern California was less than $500 million, said Robert Hartwig, chief economist for the Insurance Information Institute.
Besides paying to rebuild homes, insurers also may have to cover the claims of businesses who suffered losses caused by road closures and other disruptions, Hartwig said.
The insurer’s liability on most homeowners’ policies today is usually limited to 20 to 25 percent above the listed coverage amount – a change driven by the bitter disputes that emerged following the Oakland hills fire.
Many of the Oakland hills conflicts revolved around a policy provision offering “guaranteed replacement” coverage to pay higher construction costs and additional expenses for complying with changes to local building codes.
Oakland hills homeowners contended the contract clause meant insurers were on the hook for all the rebuilding bills, regardless of the expense.
Insurers now spell out strict limitations when they issue policies, but many customers either don’t read or fully understand the fine print, said Amy Bach, executive director for United Policyholders, a consumer watchdog group.
“People believe the advertising campaigns that promote insurance as a product that is supposed to put them back where they were before they suffered a loss,” Bach said. “A lot of people don’t know they have been paying more for less coverage.”
The price for homeowners policy next year is expected to average $615 nationwide, an 8 percent from this year and a 47 percent increase from the 1995 average of $418, according to the Insurance Information Institute.
Many California homeowners pay more than the national average because they live in some of the nation’s most expensive real estate markets.
Insurers say they have had to raise rates in an attempt to reverse the heavy losses they have suffered on homeowners’ coverage. The industry has lost $17 billion during the last four years, according to the Insurance Information Institute.
Those trends don’t bode well for the Southern California victims, said Harvey Rosenfield, who heads the Foundation for Taxpayer and Consumer Rights. “Insurers are going to try to hold on to every dollar that they can,” he predicted.
Rosenfield also believes insurers will use the Southern California fires as a reason to raise homeowners’ insurance rates even higher, an idea dismissed by industry officials.
“Every rate increase has to be justified,” Dunmoyer said. “You can’t raise rates just because you had a bad day or bad week.”
On The Net:
Personal Insurance Federation: http://www.pifc.org
Foundation for Taxpayer and Consumer Rights: http://www.consumerwatchdog.org