Commissioner John Garamendi released a new report Oct. 25 showing that survivors of the Southern California wildfires who suffered total losses have filed formal complaints with the Department of Insurance at a rate 22 times higher than the normal rate of complaints.
A study of complaints for this report found that of the 2,734 “total-loss” claims filed with insurers following the fires, 22 percent—or 676—generated complaints over the handling of the claim by the insurer. Typically, the Department receives complaints from about 1 percent of all claims in most lines of insurance.
The report was completed after a survey of the top 76 insurers in the state, representing 95 percent of the homeowners insurance market in Southern California. While some of the disparity in the wildfire complaint numbers as compared to normal claims may be attributable to the high profile nature of the wildfires, Commissioner Garamendi said that the numbers indicate that the system, in this case, is not working as effectively as it could.
“This disturbing report, at the very least, demonstrates a systemic problem of underinsurance that is happening throughout the industry,” Commissioner Garamendi said. “At worst, it indicates that insurers in many cases have not held up their end of the bargain with fire survivors who are looking to rebuild their lives.”
The report shows that 316 of the 676 complaints filed involved underinsurance – when the coverage for a home does not fully cover the amount it will take to rebuild. Commissioner Garamendi’s “Homeowners Bill of Rights” addresses this and other problems found in the homeowners insurance market, but more must be done, he said.
“Consumers all over this nation are finding that the policies they bought for their homes do not adequately provide coverage to rebuild in the case of a total loss,” Commissioner Garamendi said. “Yet insurers already have models that they say provide an accurate estimation of the rebuilding cost. If that’s so, why are so many people now facing financial hardship because they are being forced to pay much of the rebuilding cost from their own pockets?”
The report also documents a rebuilding process that has been hampered by numerous problems, including the slow pace of building permit issuances. Of the 2,691 homes destroyed in San Diego County, only 655 have received permits to rebuild so far, and only 150 have been rebuilt and approved for occupancy.
In San Bernardino County, of the 659 homes destroyed, only 210 have permits for rebuilding, and only 16 have been rebuilt. The Commissioner said that the problems responsible for this slow pace vary, but insurers handling of claims is a factor.
“People cannot rebuild if they haven’t been able to settle their claims with the insurers yet,” he said. “These people need help now, and they need the appropriate amount of cooperation from the insurers – otherwise, when their additional living expenses money runs out, they may not have anywhere to live.”
The October 2003 wildfires resulted in an estimated 3631 primary structures destroyed, 24 deaths and 739,597 acres destroyed, mostly in San Diego and San Bernardino counties. Underinsurance complaints make up about 47% of all complaints filed.
Of the 316 underinsurance complaints, the Department has been successful in getting reformation and payment over policy limits on about 50 cases, with several other cases still pending. In all of the 676 claims cases with complaints, the Department has helped collect $10,483,356 on behalf of consumers.
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