With the Santa Ana winds easing and emergency workers finally starting to make a little bit of headway in their battle against the southern California wildfires, the media seems to be turning its attention towards the insurance matters ahead.
For example, Reuters is reporting:
Risk Management Solutions, which predicts and assesses insured damages, said in a statement that the wildfires which have devastated Southern California would likely cost insurers between $900 million and $1.6 billion.
“(But) if the wildfires continue to spread in this ongoing situation, losses are expected to reach or even exceed the higher end of this estimate,” Risk Management Solutions said.
Of course, don’t forget that that’s just an estimate of the insured losses, and wouldn’t include uninsured losses, deductibles, and the like.
An AP story (via Forbes) comments on the potential impact on homeowners insurance rates down the road:
With damage estimates climbing daily, reaching $1 billion Wednesday, homeowners fear that insurance companies will raise rates or even cancel policies in the wake of the fires.
State officials and consumer advocates say that’s not likely, but the scope of the fires and past tussles with insurers make many Californians skeptical.
Officials say they’ll be able to reign in rates, pointing out that insurance in California is highly regulated, and authorities aren’t likely to approve any increases in premiums, especially after pushing companies to reduce premiums this year.
Of course, changes to your homeowners insurance bill aren’t just impacted by your insurer’s base rates. Many carriers automagically increase Coverage A limits, attempting to replicate the inflationary pressures on replacement costs…which helps explain why the California homeowners insurance market seems so profitable. Coverage A amounts have risen with the real estate bubble, but the bubble itself has distorted the relationship between insured values and severity distributions on losses. Since many insurers are loath to revise their Coverage A rate relativities… I can easily imagine weird things going on in results.
However, Coverage A limits increases are likely to enter public consciousness for another reason. David Rossmiller at Insurance Coverage Blog writes (quoting a CNN story):
One of the biggest controversies erupted in 2003, when fires ravaged San Diego and San Bernardino counties. Consumers found themselves underinsured because their policy limits were not raised to reflect their home values, said Heller. That meant homeowners had to pay the difference.
“I think there is a question as to whether insurance companies learned from 2003 and have made sure that policyholders have enough coverage,” said Heller.
Interesting turn of the phrase there—did insurers make sure policyholders had enough insurance. Another way to say it: did policyholders learn from the 2003 fires and make sure they had enough coverage?