Calif. Commissioner Grills Insurers on Underinsured Homeowner Problem

Replacement cost, policy limits, and non-renewal of policies were the source of a heated debate in a day-long hearing investigating underinsured homeowners affected by last year’s wildfires.

California Insurance Commissioner John Garamendi held a statewide investigative hearing in San Diego Oct. 21 to discuss what the Commissioner called a “crisis in coverage,” asking major insurance companies why California’s homeowners are underinsured. The investigation stemmed from the California wildfires of Oct. 2003, which burned thousands of homes in three counties: San Diego, Riverside, and San Bernardino.

“Insurers work with homeowners to help them make the right coverage decisions,” said representatives of the Personal Insurance Federation of California (PIFC), American Insurance Association (AIA), and the Association of California Insurance Companies (ACIC), in a statement.

“It makes no financial or business sense for insurance companies to intentionally underinsure their customers.”

The hearing featured testimony from representatives of industry trade associations, insurance companies, consumer advocates, wildfire victims and a property valuation solution provider.

Marshall & Swift/Boeckh, a Los Angeles-based residential and commercial property valuations firm, which supplies insurance companies with software designed to evaluate the replacement cost of property, testified in defense of its products. Many insurers reportedly rely heavily on MS/B’s technology when underwriting homeowners’ policies.

A point of contention was MS/B’s Quick Quote software program, which gives homeowners a rapid estimate of policy limits. MS/B insisted that agents and brokers rarely utilize Quick Quote, which one consumer advocate said was severely deficient in estimating replacement cost. The MS/B Full Quote program was generally agreed to be sufficient in estimating replacement home cost.

Garamendi addressed pointed questions and comments to representatives from several insurers, including the Interinsurance Exchange of the Automobile Club, Allstate Insurance Co., Farmers Insurance, and State Farm Insurance.

He lauded the Automobile Club for the implementation of their Guaranteed Replacement policy, but delivered harsh words to the representatives of Allstate, Farmers and State Farm. He urged insurers to practice more disclosure with consumers.

Steve Young, general counsel for IBA West, testified on behalf of insurance agents.

For the full story, please see the Nov. 8 issue of Insurance Journal West.