Rebuilding After the Southern California Wildfires: What Consumers Should Look Out For On Insurance

By Carmen BalberConsumer Advocate
Foundation for Taxpayer and Consumer Rights

As consumer advocates, the Foundation for Taxpayer and Consumer Rights has joined state Senator Dean Florez to offer advice to consumers affected by wildfires across Southern California, and caution policymakers to watch the insurance industry closely to protect consumers as the fires subside and rebuilding begins.

Can homeowners rebuild?

After the 2003 fires, many homeowners discovered that their insurance coverage would not fully repair or replace their homes. The 2007 fires will be the test of whether insurance companies corrected the problems of the past and lived up to the obligation to provide adequate coverage to homeowners. If insurers fail the test, legislation will be necessary to hold insurance companies responsible for setting adequate policy limits for homeowners.

Premiums should not go up

Insurance companies have made enough money in California to cover any losses from the current fires. Profits for California homeowners insurers are estimated at $6 billion between 2004 and 2006. In fact, homeowners insurance companies have been reducing rates over the last year because loss ratios – the amount insurers pay customers in claims – had reached record lows. Allstate Insurance is the only major insurer bucking that trend and is currently subject to a Department of Insurance investigation of its request to increase rates.Consumers pay premiums diligently month after month to be protected in the event of disaster. Rates that were adequate the week before the fires should not go up now that the expected has occurred. Regulators should have a zero tolerance policy for rate hikes in the wake of the fires.

Non-renewal not an option

Everyone in a disaster area should be protected from losing their insurance coverage. However, many insurers nationally have adopted cut and run policies that find them leaving areas they consider risky just as customers need their protection the most.

A law passed after the 2003 fires prevents insurance companies from canceling coverage for at least one policy period for California consumers whose homes are damaged during a declared emergency. However, insurers may still pull out of an area that was threatened during the emergency. Consumers who were for example evacuated but whose homes were not harmed are not protected. The Insurance Commissioner and lawmakers should make sure that families in the communities affected by the fires, whether or not they sustained damage, don’t lose their coverage.

The first offer isn’t the only offer Insurance companies have responded to the fire areas in force, promising quick resolution of homeowners’ claims. Lawmakers and regulators will be responsible for making sure that attention continues when the television cameras go home. Consumers should know they have the right to fair resolution of their claim. Homeowners can visit www.consumerwatchdog.org for the Foundation for Taxpayer and Consumer Rights’ disaster checklist of who to talk to, what records to keep, and when they may need outside help when filing a claim.Policyholders who are having difficulty with their insurance claim should contact the Department of Insurance Consumer Hotline at 1-800-927-HELP (4357).

Consumer Advocate Carmen Balber has been with the Foundation for Taxpayer and Consumer Rights for over six years. She holds a B.A. in Politics from Pomona College.