Continuing last week’s post, in addition to concerns by homeowners that the carriers aren’t paying the full damages in Fourmile fire claims, additional concerns are being raised about the coverage purchased from various carriers. The silent problem of “Underinsurance” seems to be hurting those in the Fourmile area.

Jefferson Dodge at BoulderWeekly discussed this problem in his article, Burned again- Fourmile Fire Victim Report Problems Getting Insurance Money. Dodge explained, “many Fourmile victims were unaware they were ‘under-insured.’ either because they hadn’t updated their policy in decades or were sold less insurance than they actually needed.” Lewis Perkins serves as one example. Perkins lost his home in the fire but doesn’t have enough coverage to rebuild the home he once had. At the time of the loss, the assessed value of his home was $210,000.00 but Perkins only received $91,000.00 for the structure damages. Perkins explained that he relied on his insurance company for proper coverage, after being insured with Nationwide for 26 years, Perkins thought he was covered: “I thought if you bought insurance, it would take care of things.” Another Colorado resident ran into a similar problem, but Nana Will thought she had performed her due diligence as an informed consumer when she checked on her coverage amounts after upgrading her home. In January 2010, after Will added solar panels to her home she notified Safeco. Safeco advised that so long as the system did not exceed $50,000.00 the coverage she had in place was appropriate. The solar system was less, but Will states the coverage she had in place during the September fire was inadequate; Safeco has issued payment far less than the amount needed for reconstruction.

As mentioned in Part I of this post, public adjuster Scott deLuise and others are attempting to help the policyholders who have suffered as a result of this fire.

One way public adjusters can help in times of catastrophe, as demonstrated by deLuise, is by reaching out to United Policyholders (UP).

Karen Reimus, of UP, explained that in cases of natural disaster underinsurance is the number one problem facing families who have lost their homes. Before a loss, UP suggests homeowners examine their policies closely and provides a practical math equation to see if more coverage should be purchased. Evaluate the structure limit on the home and compare this figure to the cost per-square-foot needed to rebuild a new home in your specific area. If this coverage is too low, higher limits need to be purchased for structure coverage and most likely for each coverages provided under the policy. UP’s website provides other practical tips for policyholders that can help before a loss happens.

  • Make a personal property inventory
  • Take pictures of your belongings
  • Keep a record of your items and important papers somewhere safe (besides inside your home)

The recommendations Reimus makes are sound. She came to learn about issues with her own insurance company first-hand when she lost her home in a 2003 California fire. Reimus’ home had been purchased just four months before the loss. At the time the policy was issued, Reimus asked her agent questions about the amount of coverage but she was still a victim of underinsurance. Reimus states that carriers underinsure homes intentionally to minimize their exposure and protect their market share by making premiums competitive. The problems show up for the policyholders in cases of disaster and total loss scenarios.

To help local fire victims in Colorado with this problem and others, Karen Reimus is holding a monthly series of workshops. To learn more practical tips or additional information about the situation in Colorado visit www.unitedpolicyholders/

  • Insurance Veteran

    There are several insurance to value calculators on the web that will assist consumers in calculating the reconstruction cost of their dwellings. Also remember most insurers seem to insure to only 80% of RCV to keep premiums low and they take into account most losses are not total. Consumers need to educate themselves and be educated that when disaster strikes it pays to be prepared. My grandfather paid premiums for forty seven years before losing his house to a total loss fire. We calculated that even if he had banked with reasonable interest his premiums which were at one point $37.00 a year he would not have been able to rebuild. He had a policy that guaranteed full rebuild and ended up with a nice new house.”You can pay me now or later” seems to be a valid point to retain.

  • John Nixon

    Insuring to 80% is an easy way for an agent to keep the premium lower, and it may satisfy a lender, but the insured wouldn’t be adequately protected.

    Using 80% of the estimated reconstruction cost as a reported value dramatically increases the potential for a coinsurance penalty on any partial loss.

    If a client has suffered from underinsurance (inadequate limits or coinsurance penalty) it would be worth the time to carefully review the agent’s ITV calculations to see if the inputs were chosen to artificially suppress the estimate. Check other estimates done by that agent, check to see if there’s a pattern to their errors.

    Similarly, there are appraisers in Florida who offer to assist property owners in reducing their premiums. Many are using cost guides intended for estimating new construction rather than reconstruction costs (check for a disclaimer that states the data should not be used for insurance purposes) and the unsuspecting consumer doesn’t understand the difference.

    Beware of any free web-based calculators – all the ones I’ve seen are intended for new construction, not reconstruction.

  • Nicole Vinson

    Hi John & Insurance Veteran.

    Thanks for responding to this post. It sounds like one the best things for consumers to do it spend a little time learning more about their insurance coverage either prior to the sale or at renewal. I think your advice for consumers to be educated and not just rely on others to make sure they have enough insurance is very sound advice. I know we all seem to put things off but taking a little extra time to review coverage and ask questions (John that is a nice list) about the insurance contained the policy and the method used to determine the amount of coverage can really save consumers time and headaches later.

    Again, thanks for the commments.

  • Insurance Veteran

    Consumers should make sure that the ITV calculations include the debris removal costs, addressing any environmental impact to the damaged property i.e.furnace oil spill, code compliance and upgrade issues, damages to the landscaping, driveway etc. It costs substantially more to rehabilitate a damaged property compared to building a new one.These factors need to be accounted for when determining coverage needs.