A View From The Press Box

This is truly pathetic, and frankly, this time around, I blame the property owners as much as the insurers. I know, I know, that sounds out of tune for me, but don't these people ever learn anything from past history? I mean those on both sides?

The homeowners saw the terrible losses suffered by those in the past wildfires and knew there were so many underinsured homes. So, why didn't they get their coverage up to date?

Were they hoping their current coverage was adequate and we would never have another fire like the Cedar fire in 2003?

Did they not see the appreciated value in properties and construction costs that was trumpeted daily in the papers and on television for the past five years or more? That alone would have me worrying about the adequacy of my coverage.

Or, did they simply pinch a penny and decide not to cover to the suggested limits in the belief that it "couldn't happen to them"?

Or did they contact their insurance agent and were told all was well and they would be covered? Did they even read their policy and contact their agent? Did their agent or company ever contact them over the past years except to collect premium and send a renewal notice?

Why didn't the carriers choose to actually inspect the properties to see whether they were even close to meeting insurable value?

The cost for a fee company to do an inspection and shoot a few pics is so low that it behooves any company to do so on at least a five-year basis to see what thay have in their book of business--not only for physical property maintenance and quality, but for brush growth and other wildfire or other aspects that might make a property more subject to high loss potential.

I'd suppose another nasty round of finger-pointing and closely-following litigation will be in the wings for this event as well.

Unfortunately, in this case, I hate to say it's probably going to be well-deserved on both sides, for lack of communication and foresight.

My comments come from that of a loss control executive, risk manager and private investigator.

I'm a producer and feel it is the agent's responsibility to remind the homeowner that it is THEIR responsibility to make sure they are insured to at least 80 percent of replacement cost. I don't do a lot of homeowners, but it seems that virtually every insurer attempts to alert the homeowner to insure properly.

Many if not all include a notice with every renewal billing. They usually increase by the construction cost index rate every renewal and remind the insured to make sure their limits are adequate.

I do the same whenever I quote a new policy, and I remind the homeowner that it is THEIR responsibility to make sure they are properly insured to value.

That said, getting most homeowners to do anything at all--appraisals, or even accepting the insurer's suggested value--is like pulling teeth, only the screams of pain are worse.

They only look at it as an unnecessary expense--that it, until there's a loss; then it's the insurance company taking their premium all these years, then stealing from them when they have their first-ever claim.

A businessowner or CFO will go to considerable lengths to make sure their business property is insured to value, but many will do exactly the opposite with their home.

Human nature is against us.

Haven't we been through this before? Seems like previous hurricanes and wildfires have brought up the same cry: "My agent did not write enough coverage for my house!!!"

Insurance is like a police department. No one wants to deal with you untill THEY need you. Then you better do everything their way or you are wrong.

How many people refused to raise their coverage when it was brought up to them? How many intentionally told the agent that the square footage was less than what it really was in order to save on premium?

Conversely, how many carriers actually do inspect properties every two-to-four years to see if the risk is insured for proper value and in acceptable condition? Maybe one out of five million, as the bean counters do not like costs that "do not improve the bottom line." Yeah, right.

An agent or company today has to have a customer sign documents where the customer is rejecting any reccomendation(s) made by the agent or company. This latest fire is exactly the reason why.

It is the big, bad insurance company/agent's fault. Not the insured who rejected increased limits, never bothered to read how much coverage they had, or ask any questions--as then they may be partially at fault for the condition they put themselves into.

Being on the receiving end of all this, as I am one of the adjusters out there, I have heard it all.

I'm surprised that companies would even allow this. My companies demand a replacement cost estimator with every replacement cost policy and will only allow a small variance one way or the other. So my question(s) are

1) Are 40% of clients in California buying actual cash value policies?

2) Are agents in California selling ACV policies to clients who should have or qualify for RC coverage?

3) Is the housing market in California changing so much that it is impossible to keep up with the changes?

4) Are the RC estimators not doing a good job of estimating actual RC value?

5) Is coverage so expensive in California that consumers are nickle and diming their policy to save money?

I believe we are probably looking at a combination of "all of the above."

With this in mind, any of the players--agent, broker, company or client--could be the culprit of poor financial decisions.

It amazes me how we see this problem consistently on the East and West Coast, but not so much in the middle of the country. Even with Katrina, the question posed most often was not one of property value, but rather a wind vs water discussion.

As a follow up to Michael Burnell's questions:

1. I don't see the ACV policies. What I see are the policies never being updated except for the minimal increases that normally go with annual policy renewals, only a few percent. A real exception to this is AAA insurance. where they increased the value of my home by 21 percent automatically last year due to the increases in costs for materials, etc.

They also send out a questionaire asking about the construction specifics such as cathedral ceilings, stone fireplaces, or anything else unusual, plus an annual update questionaire asking about improvements, etc. But, they are one of the few, and when you look at the statistics from the wildfires, both in 2003 and 2007, you'll find a huge satisfaction level with their service and payments.

2. I don't think agents are selling ACV policies, but again, you will have people who just want the "basics" and if that's all they want, there are always people who will sell it to them.

Insurance here has doubled over the past years so I'd guess many are trying to cut corners. When someone says your home is worth $200K and you can cover it for $500 rather than $1,000, many don't read the fine print. Heck, most people never read their policy anyway.

3. The housing market isn't changing any more than anywhere else. The sales value of the home is not really relative to the rebuilding cost, as you know. It's a supply and demand issue and depends on location.

You can build the same 2,000 square foot home on a lot in Carlsbad near the sea as you can inland in Santee for about the same construction dollars, but the lot will cost six-to-10-times the amount, or more, depending on exact location and size.

4. I went through this with my previous company and frankly, the M&S calculators were way off based on ZIP codes and construction types, mainly because the users don't know how to interpolate between the construction types and information.

Also, the estimators are just that, and what seems "ordinary" to some are above average to others and can skew the costs measurably. I've been inside buildings that are literally palatial, yet the outside is very plain, simply to keep the tax man from seeing the wealth of the owners, and thus keeping property taxes low!

5. Finally, coverage is expensive, but again, people are people and will chisel the dime to save a buck on the non-tangible items in life to spend it on the items they hold near and dear to their heart, like the Lexus or Mercedes. Doesn't matter if neither of those will help when the big fires comes along. It's like my favorite saying:

"After you jump it's too late to wish you bought a better parachute!"