It’s one in the morning and you wake to see the red glow of fire through the window, or you’re driving in rainy conditions, and your car skids toward an oncoming car. Are you covered? Catastrophic loss is what too many people have suffered, but many still don’t think it can happen to them. But it could, and in the world of insurance, it’s best to be prepared. Those who have lived through the recent local fires know all too well that their ability to recover after such an event is heavily dependent on the amount of insurance coverage they have. But what does it mean to be sufficiently insured? The answer can be elusive.
Here’s what North Bay experts have to say about questions many of us would rather avoid: Who needs what insurance and when? How much coverage is needed and why? And how often should they call their agents to review their policies? The grim, but unsurprising news is that given the escalating risk factors and attendant costs of life in the North Bay, a routine check up with your insurance agent rivals the importance of a physical with your family doctor.
How people fare in catastrophes can depend on their insurance. “I’ve seen people cry because they didn’t have enough coverage,” says Scott Martindale, Farmers Insurance agent in Healdsburg. “And I’ve seen people cry because they did have enough.” Martindale spent more than four years as district manager for Farmers before becoming an agent and oversaw thousands of claims associated with five major wildfires, including Lake County and Tubbs. “It used to be we tried to get the rebuild coverage on your home to about $350 a square foot,” says Martindale. “Now, we’re at $450 or $500 or more. So, if you lose everything to the fire, you don’t have enough to rebuild.”
This is not something most people want to think about. Increasing coverage means higher premiums. Plus, as Martindale says, “Insurance is an intangible. You can’t touch it and you never want to use it.” Nevertheless, recent stories of loss of life and property have hit home. The nature of risk—and coverage for risk—has changed. “Insurance is not for the small stuff anymore,” says Martindale. “It’s not for a baseball going through your window. It’s about a total loss—when you lose everything.”
Thinking about insurance means thinking about categories of risk, though catastrophic loss is still a potential factor. “You’re at the greatest risk of losing everything every time you get in your car,” says Martindale. “You drive down the street and you pull out in front of a family of four and cause serious damage and people are hurt. Ambulances. Emergency room. Surgeries. Lost wages.” With the costs of emergency care, not to mention the costs of any property damage, one accident could plunge an insufficiently insured person into hundreds of thousands of dollars of debt. Yet, he says, “People are driving around, legal, according to California laws, with $15,000 in liability coverage, which barely covers an ambulance ride today. But $5 more a month may get you covered so that insurance would cover such an event.”
Martindale, like good agents today, will likely readjust your priorities upon examining coverage. For example, if you have a $500 deductible, he may suggest raising it to $1,000 or higher, to buy thousands more in coverage. You may have to deal with a small claim yourself, but you’ll survive a major disaster. “It’s a lot easier to find an extra $500 [in your budget] than a million dollars in a judgment,” he says. These days, a claim of hundreds of thousands of dollars is more common that it used to be. “In California, it’s not uncommon to have a $100,000 car next to you on the road,” he says. Ten years ago, that would have been rare. But now, they’re all over the place. So, if you tap someone’s back bumper now, or if someone dings your own luxury ride, it could be a $5,000 problem. If you only have the state minimum, for the sake of low premiums, you’re underinsured.
Martindale continues to focus on the big, expensive, wipeout incident. “In California, everyone should have a $1 million personal umbrella policy, at least,” he says, explaining that umbrella policies cover “excess liability” over the underlying policies (auto and home), providing additional liability coverage to include legal defense if necessary. They come in increments of $1 million and cover liability claims above and beyond the capacity of your home or auto insurance. In the event of a costly accident, if the claims are higher than the limit on your policy, the umbrella kicks in to pay the rest—or to pay the lawyers to contest the rest. What if you have good coverage, but no umbrella? “Say someone has on their auto policy $250,000 per person, and $500,000 per accident, but only $100,000 property damage. They have an accident, and people go to the hospital. If they don’t have a personal umbrella and Farmers determines the claims will be over $500,000, we’re just going to send you a letter saying you don’t have enough insurance and you’re probably going to have to hire a lawyer. Or if you have an umbrella, we come in with a legal defense. That’s the benefit of having more coverage.”
A homeowner’s responsibility
Robin Long, an insurance advisor with Heffernan Insurance Brokers in Petaluma, says after the avalanche of disasters and claims in recent years, she is seeing insurance carriers restrict who and what they will insure. They’re also more likely to cancel a policy. She says she’s gotten “non-renewal” lists from just about every carrier. Long is starting to see clients lose their coverage simply for missing a payment, in some cases. They have to start over again with new terms and steep premium increases. In some cases, the “new underwriting guidelines” that have been put into place render a home ineligible with their longtime carrier, though the house is the same. She’s also seen clients dropped for having made too many claims within a given period of time. This is no time to take your coverage—or your agent—for granted. Her advice is to have a meeting with your agent right away and to enroll in an auto-pay program to avoid accidental cancellation for non-payment.
The review process is straightforward, she explains. Whether your agent is one you’ve worked with for years, or is new, he or she will make sure the information in their computer corresponds to the facts of your property, as it is now. They’ll ask you to verify the year your home was built, the square footage, the age of the roof, and whether you’ve added to or remodeled the home. Personal property is also taken into account, according to Long. After a specific review, your agent may make suggestions to ensure you have the coverage needed should disaster occur.
Now comes the part nobody likes—choosing higher premiums to cover higher values and rebuild costs, when rates are already going up. Like Martindale, Long will suggest a revision of your priorities. “Nowadays, if you have a $1,000 deductible on your policy, and you have a $1,500 claim because something got stolen or there’s some damage, I’m going to tell my client that it’s probably better not to turn that claim in because then they’ll have a claim on their policy, which is a negative mark.” If you accept that, you can raise your deductible to $5,000 or $10,000 to insure for the larger loss. Again, she explains, it may sting a little, but it will be easier to find an extra $500 for a relatively small loss than to find an extra $1 million should a significant disaster occur.
What else may have changed about your coverage? “Because everything changed after the wildfires, some carriers are changing their policies,” she says. You may or may not, for example, have the option to either cash out or rebuild. You need to know what your policy allows. Another part of your homeowners’ coverage that may have changed as result of the fires is the amount of your “extended replacement cost.” This is a percentage more than your dwelling coverage to allow for increased costs to rebuild in the event of a catastrophic loss. Some carriers max out at 20 percent extended replacement cost, while others allow you the option to acquire up to 50 percent and even 100 percent more than your base dwelling coverage.
Since the 2017 fires, Long has seen cases where costs of rebuilding—labor, materials, permits, and sheer demand—have increased so steeply that the extended replacement costs coverages were being exhausted. “Say a home is insured for $1.3 million,” she says. “In my eyes and in the carrier’s eyes, that was going to be enough to rebuild the home. But because of the catastrophic nature of the event, and because of supply and demand, those coverages inflated overnight.” As a result, some carriers now offer only a small amount of that extended replacement cost. So you may have less coverage. Better to know now than later.
Renters aren’t excluded from the changing world of insurance. Long says that many people around Santa Rosa and Napa who pay the landlord may not feel the need for insurance because they don’t own their home. But, she emphasizes, they do need “loss of use” coverage. “Renters’ insurance is inexpensive,” she says. “Maybe you don’t need it so much for personal property, but in the event that you’re displaced by a fire, your renters’ insurance policy will pay for you to rent somewhere else.” This could keep some people in their jobs who, considering the escalating costs and scarcity of rentals in our area, would otherwise have to move away if they lost their housing.
What about a homeowner who has a renter? In case of a wildfire, the homeowner is not liable. But, says Long, “If you are a landlord, and there is a fire you are found liable for and your tenants were displaced, you could be responsible to pay for their loss of occupancy.” You’ll want to be covered for that.
Finally, what if, for some reason—say the house is in a beautiful, remote, forested high-risk zone or you’ve been a bad risk (filed too many claims for damage for which you’ve been responsible) in the past—you find you can’t get insurance or your policy is dropped? There are carriers called “non-admitted” companies, such as Lloyds of London, Scottsdale, or Lexington, who serve as last resorts. “The ‘non-admitted carriers’ means the coverage is still very similar to an admitted carrier’s policy,” says Long. “You still have your dwelling coverage; there’s still extended replacement costs and whatnot. They’re just not admitted with the state of California. Which means they don’t have to abide by the Department of Insurance (DOI) rules and regulations. So, if they want to change their contract or change something with how they handle their claims, they can go ahead and implement and not have to file with the DOI and wait for it to be approved. That’s really the only difference.” She hopes, should we have a couple years without catastrophic wildfires, insurers will get back into a normal comfort zone. “This is a temporary thing,” Long says, with a pause. “I’m hoping.”
High costs for everyone
Meanwhile, the cost of coverage keeps going up. Scott Johnson, principal broker, agent and founder of Marindependent Insurance Services in Mill Valley, acknowledges that most premiums are going up these days. But as someone who works on the “last resort,” hardest to insure properties, when he hears people complain about their premiums, he tells them, “You should be happy.” What Johnson means is, you should be happy to have insurance at all. And when you think you’re paying too much, think of the insurance companies, facing consecutive years of multiple disasters and thousands of claims mounting into billions of dollars. They have their own problems. “Home insurance companies have to balance their books, just like any other business,” he says. “When they’ve got losses going out the door, they’ve got to re-assess what they’re charging everybody. And there are regulations about what they can and cannot charge you. They cannot just put a wet finger up in the air and make up a number. They [the ‘admitted’ companies] have to sit in front of the DOI and explain their reasoning.”
After two years in a row of payouts for catastrophic fires, it doesn’t seem that crazy to him that people’s home insurance rates are going up. He tries to help his clients understand insurance—that the ideal policy is more than a bargain rate premium; it’s about value and risk. “People come to me and say they have $400,000 in home insurance coverage, and I’m like, ‘Honestly? That’s what people are paying to remodel their kitchens around here.’”
Get routine checkups
An insurance policy is intangible. It’s a promise you’re purchasing, so that when you need it, it’s there. Get a good, preferably local agent who listens to you, knows your situation, and advises with your interests at heart. “Don’t wait for your agent to call you,” says Long. “Make those phone calls and schedule those insurance reviews.” What you’re paying for, bottom line, is peace of mind. Natural disasters, such as recent wildfires in California are out of our control, and though such disasters have changed the world of insurance, acquiring proper coverage is up to the consumer. There are attainable steps we can take to care for others and ourselves in case of catastrophe. “You get what you pay for,” says Martindale. “If you’re paying for insurance, why not pay a bit more to have enough?”
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