50% of California homeowners are under insured
There is no law requiring you to buy homeowner’s insurance. However, to qualify for a mortgage, your lender will likely require it. (iStock)
SACRAMENTO, Calif. - The California Board of Equalization, the state's tax collector, held a hearing over concerns about lower revenues to finance state operations stemming from wildfires. Long recoveries deny the state many forms of revenue as people struggle to rebuild. The Board heard some big surprises.
It turns out that what your homeowners insurance company told you was enough to replace your home is based on a big lie.
The California Board of Equalization called in experts and learned that 50%, fully a half of California homeowners, are underinsured.
Why? Insurance companies set your premium by computer algorithms telling you what coverage you need to buy to rebuild your home.
"Everything we know is that people do want to buy enough. They think they have bought enough. And they only learn that they're wrong after they've lost everything," said law professor Kevin Kline with the California School of Law.
Kline is one of the nation's most respected insurance analysts who recently reviewed 62,000 claims.
"The data allows me to isolate what the algorithm is producing as an estimate of adequate coverage to reconstruct a home. That estimate was low about 95% of the time and by, on average, by half. And, big shocker, it comes in far lower than reality," said Kline.
"These software programs, their defaults are, you know, building a tract home development in a flat area, when a lot of these areas don't have those characteristics," said Amy Bach, director of consumer advocacy group United Policyholders.
"They're wrong and they're not just wrong. They're misleading. That's why I believe we don't need any new legislation. There's a Business Code, 17.200, that prevents fraud from being engaged in business," said Matt Everson, Co-Founder of BW Builders in Santa Rosa.
Despite this, insurers want to expand use of algorithms to price people down to their specific home. "Underinsurance is the silent thief of irreparable financial harm," said multi-line, multi- company insurance agent David Shaffer.
He says the way to fix this is for California to create an accurate universal rate calculator that all insurance sellers must use. Market competition will change when we're all competing with the same building limit to begin with,"said the agent.
An insurance executive was scheduled to testify but did not show, preferring to send the Board a letter. Rates keep climbing and you're paying for it.
