by Ken Goodwin
Managing Partner and Insurance Advisor
Living in California can be a dream come true for many homeowners. The temperate weather and the scenic beaches not only attract local but foreign tourists to California too. Unfortunately, the same, temperate, dry weather is responsible for causing an outbreak of wildfires. While these wildfires would usually be smaller and cause less damage, the current one that occurred in California has been extremely devastating and is one of the biggest that California has experienced.
The fact that a drought as well as a black beetle infestation had killed around 128 million trees in California only helped the spread of the wildfire. The dry shrubbery and vegetation worked as perfect kindling and many homeowners had to watch helplessly as the wildfire spread and destroyed anything in its path.
While efforts were being made to contain these wildfires, there were many homeowners who had to evacuate their homes as the wildfires had destroyed their homes and belongings. Most homeowners were lucky to walk away with only a handful of items. Many people evacuated their neighborhoods and came back to a street full of ash, rubble and ruined remnants of their homes.
Another factor to note here is that California is the most populous state and out of its entire population, 1 million people had homes in high-risk areas. Many people only had an hour’s notice to clear out their homes as rescue parties tried to aid in evacuation and efforts were made to contain the wildfire as best as possible.
While efforts were being made to contain these wildfires, there were many homeowners who had to evacuate their homes as the wildfires had destroyed their homes and belongings. Most homeowners were lucky to walk away with only a handful of items. Many people evacuated their neighborhoods and came back to a street full of ash, rubble and ruined remnants of their homes.
Another factor to note here is that California is the most populous state and out of its entire population, 1 million people had homes in high-risk areas. Many people only had an hour’s notice to clear out their homes as rescue parties tried to aid in evacuation and efforts were made to contain the wildfire as best as possible.
Some people were still evacuating their homes when the wildfire approached and had to rely on assistance from rescue workers. Many had to leave not only their belongings but also their pets and other livestock behind with little chances of them surviving the wildfires. While some have been lucky to have found them alive, there are horror stories abounding about entire farms being razed to the ground by the wildfire.
Based on the total damage caused by these wildfires, California faced a total loss of $9.4 billion as it raged over a total of 280,000 acres. These include not only the high risk areas but even affected areas that were considered to be low risk. It is the largest wildfire in the history of California and had caused numerous deaths and damages to property, livestock, cars and more. Even low-risk areas were hit severely by the wildfire, causing extreme damage.
Getting the Insurance Pay Out
With property damages ranging up to $9.4 billion and insurance companies already being inundated with numerous claims that were in connection with the California wildfires, homeowners will have to look at a slow payback. Many insurance companies are already doing their best to offer the reimbursement to homeowners but looking at the huge amount that they have to tackle, payments are going to be slow.
Other natural disasters such as the floods and hurricanes in Texas, Florida and Puerto Rico have also taken a toll on insurance providers and many already have their hands full. Despite the understanding to provide services as quickly as possible, insurance companies still have to adhere to standard procedure as much as possible. In some cases such as fire insurance, the process can be a bit convoluted and drawn out.
One insurance company, State Farm, estimated that insurance claims are growing and will continue to grow throughout the 2018. In October 2017, State Farm had received a total of 2,100 claims that were related to the devastation caused by the California wildfires. By the end of the month, the number of claims had gone up by 49% and were still growing.
Based on the total damage caused by these wildfires, California faced a total loss of $9.4 billion as it raged over a total of 280,000 acres. These include not only the high risk areas but even affected areas that were considered to be low risk. It is the largest wildfire in the history of California and had caused numerous deaths and damages to property, livestock, cars and more. Even low-risk areas were hit severely by the wildfire, causing extreme damage.
Getting the Insurance Pay Out
With property damages ranging up to $9.4 billion and insurance companies already being inundated with numerous claims that were in connection with the California wildfires, homeowners will have to look at a slow payback. Many insurance companies are already doing their best to offer the reimbursement to homeowners but looking at the huge amount that they have to tackle, payments are going to be slow.
Other natural disasters such as the floods and hurricanes in Texas, Florida and Puerto Rico have also taken a toll on insurance providers and many already have their hands full. Despite the understanding to provide services as quickly as possible, insurance companies still have to adhere to standard procedure as much as possible. In some cases such as fire insurance, the process can be a bit convoluted and drawn out.
One insurance company, State Farm, estimated that insurance claims are growing and will continue to grow throughout the 2018. In October 2017, State Farm had received a total of 2,100 claims that were related to the devastation caused by the California wildfires. By the end of the month, the number of claims had gone up by 49% and were still growing.
Despite their best efforts to address the claims being sent in, they know that they face an uphill battle. The value of the homes lost are up to billions and starting to pay out the large sums is going to be challenging for any insurance provider. Similarly, they have to address different payments based on the kind of insurance.
Getting the payment is also not easy, since the reimbursement could take anywhere from 3 to 6 months. Homeowners also need to understand that their homes might be underinsured or have unrealistic expectations regarding the kind of reimbursement they get.
Even then, homeowners might be expecting to receive more before they realize that their insurance doesn’t mean that they are going to get enough payout to rebuild their homes from scratch. Oftentimes, there are certain limitations that are included in the fine print of the insurance policy and they can come in full affect during this time. Moreover, the home owners might have homes that are underinsured which can be a huge detriment for insurance payouts.
Getting the payment is also not easy, since the reimbursement could take anywhere from 3 to 6 months. Homeowners also need to understand that their homes might be underinsured or have unrealistic expectations regarding the kind of reimbursement they get.
Even then, homeowners might be expecting to receive more before they realize that their insurance doesn’t mean that they are going to get enough payout to rebuild their homes from scratch. Oftentimes, there are certain limitations that are included in the fine print of the insurance policy and they can come in full affect during this time. Moreover, the home owners might have homes that are underinsured which can be a huge detriment for insurance payouts.
Underinsured Homes in California
Once the wildfire was controlled, homeowners were allowed to return to their home sites and begin the difficult task of piecing their lives back together. They also have to deal with insurance agents and companies. The insurance money will play a huge role in helping to rebuild the homes but there is a huge problem that most homeowners have overlooked; their home might be underinsured.
In fact, data suggests that a total of 60% of homes are underinsured. This means that if a house had a total value of $500,000, the homeowners could stand to miss out on $100,000 on the overall value, including the cost of rebuilding the home. This problem largely arises because of the fact that many homeowners have been previously misguided by insurance agents regarding the overall value of their home. Often times, insurance agents rely on different algorithms and replacement estimators that don’t always account for various factors included in rebuilding, damage and more.
In some cases, the homeowners themselves are responsible for the underinsurance. They fail to take into account how the value of their home increases when they make additions such as a finished basement, a deck or even a new room. By failing to update their policy, they then face problems in getting the right insurance coverage when disaster does strike. Insurance companies that are not aware of these changes will, of course, not cover the new value of the home if it is not reflected in their current insurance plan.
For people with underinsured homes, the fire damage caused to their homes and their properties can make it difficult for them to start working on rebuilding their houses. Moreover, insurance companies can also begin to delay payments when they are facing problems in repaying the initial amount to homeowners. In this case, homeowners will then be working slowly with the contractors as well as the insurance companies to get the proper funds that are needed for their home.
Once the wildfire was controlled, homeowners were allowed to return to their home sites and begin the difficult task of piecing their lives back together. They also have to deal with insurance agents and companies. The insurance money will play a huge role in helping to rebuild the homes but there is a huge problem that most homeowners have overlooked; their home might be underinsured.
In fact, data suggests that a total of 60% of homes are underinsured. This means that if a house had a total value of $500,000, the homeowners could stand to miss out on $100,000 on the overall value, including the cost of rebuilding the home. This problem largely arises because of the fact that many homeowners have been previously misguided by insurance agents regarding the overall value of their home. Often times, insurance agents rely on different algorithms and replacement estimators that don’t always account for various factors included in rebuilding, damage and more.
In some cases, the homeowners themselves are responsible for the underinsurance. They fail to take into account how the value of their home increases when they make additions such as a finished basement, a deck or even a new room. By failing to update their policy, they then face problems in getting the right insurance coverage when disaster does strike. Insurance companies that are not aware of these changes will, of course, not cover the new value of the home if it is not reflected in their current insurance plan.
For people with underinsured homes, the fire damage caused to their homes and their properties can make it difficult for them to start working on rebuilding their houses. Moreover, insurance companies can also begin to delay payments when they are facing problems in repaying the initial amount to homeowners. In this case, homeowners will then be working slowly with the contractors as well as the insurance companies to get the proper funds that are needed for their home.
There is also another challenge here. Homeowners have to not only actively work with their insurance providers; they also need to provide funds that can accommodate the areas that are not covered by the policy. In some cases, people have lost everything in the fires and apart from relocating or living with friends and family; there are little options that they have to reimburse their losses.
History Repeats Itself
Moreover, California is an area that is prone to natural disasters. In 1994, it faced a devastating earthquake whereas flash floods in Jan 2018, destroyed many homes and caused a lot of damage. Incidentally, low risk areas were also affected by these floods and many did not have any water damage insurance or flood insurance because they were counted as low risk and didn’t need extensive water damage insurance on that basis.
Similarly, extremely high fire damage occurred in areas that were considered to be low-risk. Santa Rosa, in particular, was counted as a low risk, urbanized area that was impacted by the wildfire. Entire subdivisions in Santa Rosa were burnt to the ground and the area suffered countless losses in lives as well as monetary losses, caused by the wildfires. Due to the low-risk status though, many properties and homes that were not insured to full value. Some had partial, minimal or no fire insurance as it wasn’t considered necessary based on the low-risk the area had.
History Repeats Itself
Moreover, California is an area that is prone to natural disasters. In 1994, it faced a devastating earthquake whereas flash floods in Jan 2018, destroyed many homes and caused a lot of damage. Incidentally, low risk areas were also affected by these floods and many did not have any water damage insurance or flood insurance because they were counted as low risk and didn’t need extensive water damage insurance on that basis.
Similarly, extremely high fire damage occurred in areas that were considered to be low-risk. Santa Rosa, in particular, was counted as a low risk, urbanized area that was impacted by the wildfire. Entire subdivisions in Santa Rosa were burnt to the ground and the area suffered countless losses in lives as well as monetary losses, caused by the wildfires. Due to the low-risk status though, many properties and homes that were not insured to full value. Some had partial, minimal or no fire insurance as it wasn’t considered necessary based on the low-risk the area had.
In total, these losses have turned out to be well over, $9.4 billion, that home insurance and other insurance companies have to handle. Due to the partial or underinsurance of building and property in the area, insurance companies will be providing partial reimbursement to the people affected by the wildfires. Moreover, low risk housing areas have also been revised. Based on the statistics gathered after this wildfire, over 2 million homes and structures in California have been marked as high risk. This revision has come about since many low risk areas needed to be revised based on the devastation and impact on the wildfire.
As was the case in the 1994 earthquakes, many insurance companies might start to refuse to provide insurance to high-risk homes and areas. In 1994, the devastation forced many insurance companies to stop providing their services in California. This was largely due to the fact that they did not want to provide earthquake insurance as it was being mandated by new state laws. While this might not be the case here, homeowners do have to look at redefined criteria that apply to them when they want to get new insurance or want to get coverage for their homes.
This is due to the fact that even low-risk homes have shown that they are, in fact, at more risk. While mostly private insurance providers are exercising their right to pick and choose the kind of homes they are providing coverage too, many homeowners still have choices when working with their independent insurance agent.
As was the case in the 1994 earthquakes, many insurance companies might start to refuse to provide insurance to high-risk homes and areas. In 1994, the devastation forced many insurance companies to stop providing their services in California. This was largely due to the fact that they did not want to provide earthquake insurance as it was being mandated by new state laws. While this might not be the case here, homeowners do have to look at redefined criteria that apply to them when they want to get new insurance or want to get coverage for their homes.
This is due to the fact that even low-risk homes have shown that they are, in fact, at more risk. While mostly private insurance providers are exercising their right to pick and choose the kind of homes they are providing coverage too, many homeowners still have choices when working with their independent insurance agent.
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