Tahoe Fire Losses Could Reach $150 Million, Victims May Be Underinsured

Insured loss estimates for the Angora Fire burning in Lake Tahoe have been upped to $100 million to $150 million, according to Risk Management Solutions, a Newark, Calif.-based risk modeling company. However, the California Department of Insurance predicted that many homeowners could be underinsured to rebuild.

The wildfire, located in El Dorado County, Calif., has consumed approximately 3,100 acres and more than 300 structures since Sunday, June 24. As of last week, favorable weather conditions were helping fire fighters to check the northeastward advance of the fire. Yet with winds forecast to increase, the situation remained volatile. If the fire were to break through the defense lines and cross into South Lake Tahoe, insured losses could potentially reach a billion dollars, RMS said.

“The Angora fire is the largest to have occurred in the Tahoe region in over four decades,” commented Don Windeler, director of wildfire risk modeling at RMS. “The area impacted has abundant surface fuel to burn, and a dry winter has only exacerbated the susceptibility to fire. RMS considers large areas of South Lake Tahoe adjacent to the fire as high to very high hazard.”

Meanwhile, the Califorrnia Department of Insurance is trying to determine whether being underinsured will be a problem for victims.
“There is a serious problem with underinsurance in the state of California,” Insurance Commissioner Steve Poizner said.

Many homeowners who thought they were fully insured found their policies left them tens of thousands — sometimes hundreds of thousands — of dollars short of what they needed to rebuild following fires that destroyed more than 3,600 homes in Southern California in 2003, Poizner explained.

Dozens of homeowners told state officials after those blazes that insurance companies wrote their policies based on their estimate of a home’s replacement cost. In many cases, those estimates turned out to be grossly inadequate.

Poizner urged homeowners to meet with their insurance agents to determine if they have enough coverage.

Lt. Gov. John Garamendi, Poizner’s predecessor as insurance commissioner, said homeowners shouldn’t skimp on coverage to keep premiums low.

“That’s a bad deal,” he said. “Raise the deductible, but keep the policy high enough so that you can rebuild.”

A spokesman for Garamendi, Norman Williams, said legislation approved in 2004 modified insurance policy disclosure requirements in an attempt to give homeowners a better understanding of how much coverage their policies would provide.

“Most people had a policy that said ‘extended replacement cost coverage,’ which to many people was misunderstood and probably misleading,” Williams said. “We had them change it to ‘limited replacement cost coverage.'”

The bill also required insurers to give their customers a notice every other year about the need to guard against being underinsured.

“Previously, they didn’t have to say anything to homeowners about being underinsured,” Williams said. “Under the new provision, they have to provide them with information which explains underinsurance and how people should reassess regularly to ensure that their coverage meets their needs.”

RMS said it will continue to monitor this event and will update loss estimates as appropriate.

Source: RMS, CDI