SF Chronicle Investigates Broken Home Insurance System
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From KQED in San Francisco, I'm Mina Kim. Coming up on Forum, California's under-insurance crisis. Four of the state's largest home insurers are knowingly using faulty data to set coverage limits, according to a new San Francisco Chronicle investigation. It means that wildfire survivors who thought they'd be made whole after losing their homes are discovering they cannot afford to rebuild.

We'll talk to the reporters behind the investigation and find out what you can do to help make sure your home is fully covered. Tell us, do you have a story about being underinsured? Forum is next. Welcome to Forum. I'm Mina Kim.

In the aftermath of every recent California wildfire, families who believed their homes were covered by insurance learned their policies would not pay out nearly enough to rebuild. And it's not just because of inflation or surges in construction costs, according to a new San Francisco Chronicle investigation. A major factor is that insurance companies are relying on a faulty algorithm to predict rebuilding costs, and in many cases, doing it knowingly.

I'm joined now by Chronicle reporter Susie Nielsen. Welcome to Forum, Susie. Thanks, Mina. It's an honor to be here. Glad to have you here. And Megan Van Muntz. Welcome to Forum, Megan. Thank you so much. And listeners, if you've discovered that you were underinsured, we want to hear from you as well. And you can join us at 866-733-6786 at the email address forum at kqed.org or on our social channels on Blue Sky Facebook, Instagram, or Threads.

Megan, in your piece, there are several heartbreaking stories. But tell us about the Salazars who survived the Kaldor fire in 2021. They were insured, right?

Absolutely. And the Salazars weren't just insured. They had two insurance policies and they had a provision in their policy that many of us have, which is called extended replacement cost. And it's specifically supposed to protect people against being underinsured. But despite that, it was only months after the fire when the debris had been cleared by FEMA and when they were finally able to get a contractor in that they discovered they had about...

half of what they were going to need to actually rebuild their house, despite having all of those provisions in place. Yeah, you were saying that each year they had paid a little bit extra, right, to farmers for extended replacement cost coverage and so on.

Yeah, absolutely. And I think it's a testament to, you know, the Salazars are sort of an early victim of California's insurance crisis. They lived in a very wildfire prone area where many insurance companies had already sort of pulled out and left people on the California Fair Plan. So for them, having insurance was expensive. It was hard to find, but they still did it. And despite all of that, they still found themselves at a position that many California homeowners do, which is finding out that that insurance policy didn't protect them in the end.

So when they were talking with their agent and first getting this policy, what did the agent tell them? Did the agent say they would be fully covered?

So the Salazars, like many of us, sort of came to the process thinking, well, the insurance agent is the expert in this, so I'll trust their recommendation. They recall their agent asking them questions like, what's the square footage of your home and what is your roof made out of? But they were never told, we're using an algorithm to determine how much to replace your home with. And we know from internal company investigations that this algorithm bias is low. And so actually take this recommendation and do your own research and probably pick a higher number.

They just heard the agent's number and thought, well, if they're the expert, then that's the amount I need to replace my home. So tell me how the Salazars are living now, what they did after they realized that they could not rebuild and that it would cost what a

couple hundred thousand dollars extra on top of what the insurance company would cover to even be able to rebuild something comparable. Yeah, absolutely. I mean, at a $200,000 difference, they knew straight away they were not going to be able to rebuild their house. But they wanted to find a sense of stability for their teenage granddaughter, who the two older Salazars have been raising for much of her life. And so they bought a manufactured home, which is what a lot of underinsured victims turn to.

But when you walk through the home, you can see the cracks in the ceiling. You can walk into the shower where Richard, who's a Vietnam War veteran who's now 80 years old,

It doesn't have a place to hold on to. You know, when they first moved in, there were nails sticking out of the carpet. There was sewage underneath the manufactured home. So even though they have a place to live now, they say it doesn't feel like home. It doesn't feel anything like the place that they used to have, which they called their little bit of heaven. Yeah. Susie, the Salazar family's story is one of many, I understand, from this particular community, Grizzly Flats. Can you just remind us how hard they were hit by the Kaldor fire? Sure.

Sure, yeah. So when Megan and I started reporting on this story, Grizzly Flats was actually the first community that we traveled to in our reporting. And we were struck immediately as we drove up into the community, which is in the Sierra Nevada foothills in El Dorado County.

On one side of the road, there's this lush carpet of trees. And in the burn scar where the Caldor fire burned, it's just still looks like it happened months ago. There were more than 400 homes that were burned down in that fire and fewer than 30 have been rebuilt three years later. And in place of these homes on these empty lots, residents have brought in trailers to live in. And we spent time with folks in those trailers. We spent time with

husband and wife couple who were unable to pay for their rebuild because they were underinsured. And now the husband, Troy, who is disabled from a life of manual labor, is

building his own home from scratch. Every day he wakes up at 6 a.m. and goes in and builds his own home. And he's told us, you know, he's going to keep doing this until his body gives out because he wants to rebuild this home for him and his wife, Janet. And Janet is suffering from cancer and he just wants to finish the home before she, you know, the worst happens. What a startling statistic. 400 homes and fewer than 30 now having been rebuilt. So, Susie, in the wake of the Los Angeles wildfires,

What are you hearing in terms of the level of under-insurance in Altadena, the Palisades, and other places?

Yeah. So unfortunately, I think Los Angeles is kind of the perfect storm in a lot of ways. You're seeing a lot of folks who are longtime homeowners with policies that are just not up to par with current construction costs. So we've heard from so many homeowners there who are already discovering. Usually it takes months to discover that you're underinsured once you start filing your claims and talking with your insurance company about

But we've already been hearing from homeowners. We talked to a man who has a home that will probably take over a million dollars to replace, but he's insured for $300,000. And his policy was set using this algorithm. We've talked to lawyers who say that they are being flooded with calls from victims of both the Palisades and the Eaton fires. I want to dig more into the algorithm in a moment. But Megan, you have said that you see these

victims when they are confronting the realization of underinsurance, confronting essentially a second disaster. What do you mean? Well, I think Richard Salazar in the piece puts it really well that you don't know what it's going to be like to be a wildfire victim, but you kind of have this vague idea that the worst will happen and then the cavalry will come for you. You know, there will be FEMA aid. The state will give you aid. Your insurance policy will pay you out and slowly but surely you'll get back to the place that you once were. And so the

That thought carries many of these wildfire survivors through this traumatic event as they're dealing with this huge loss. Then to weeks or months or sometimes even days, depending on how underinsured you are and how quickly you realize it, to realize that that's not going to happen, that the cavalry is not going to come for you, that you may never get back to the place that you were, especially when you're someone who's more advanced in age, who for you this home was really your nest egg, your retirement plan.

You know, I think that in many ways for many of the wildfire survivors we spoke to was just as traumatic as the moment when they realized they lost everything because it was the moment they realized that everything they lost was never, ever going to come back. The Salazars bought a manufactured home. The other family that you were talking about died.

Susie, they built their own, or he's attempting to, Troy is attempting to build his own home by his own two hands right now. I understand that he's also on disability. What are other things that underinsured fire victims do, Megan?

A lot of them end up in trailers and may live in trailers for the rest of their lives. Some of them go back to being renters and then, you know, all the money they invested in paying their mortgage or owning their homes outright goes away and they're back to draining their savings over and over to pay for a rental property. And what's sad, too, is that many of our insurance policies, even though we have these coverage limits and for many of them, those coverage limits are too low.

to get your full coverage limit, you have to rebuild your home or you have to go out and buy another home. But if you've only got $300,000 and that's not going to buy you a home in Altadena or a home in Pacific Palisades, and then you have no option to buy another home or to rebuild your home, then you also end up in a situation where you get even less money from your insurance company because you didn't end up replacing your home.

So, Susie, you have found that a major factor that contributes to underinsurance is how the coverage is calculated by insurance companies. Tell me what companies you looked at and how are they determining coverage limits? Absolutely. So...

Megan and I found that at least four of California's six largest insurance companies, so that's State Farm, Farmers, CSAA, which is the Northern California version of AAA, and USAA, all these companies are relying on the same algorithm to invest.

basically determine or guess how much it will cost a homeowner to rebuild their home. And that algorithm is called 360 value. It was created by this company called Verisk, which you've probably never heard of, but it plays a big role in a lot of homeowners' lives. It is a $42 billion company.

And so the way that 360 value works, it is what's called a component cost algorithm, a total component cost algorithm. And what it tries to do is it tries to take all of these inputs about your home. You know, how big is it? What year was it built? What do the kitchen cabinets look like? What is the roof made out of? And then using those inputs, it attempts to

basically create a model of your home that prices every single one of those components down to the last nail, down to the last plank, to determine basically how much it thinks it will cost to rebuild your house. And theoretically, these tools can be really sophisticated and

price a home in a really, you know, individual unique way, which would be great for Californians because a lot of us have these kind of custom homes. But in practice, what we found is that 360 value is often drawing from data sources that are inaccurate, outdated, incomplete. It sources very heavily from county assessor records, which often contain incomplete details about a home.

When it doesn't know an answer to a value, it often will make an educated guess using its algorithm. And we actually bought a subscription to the tool and used it ourselves on many people we know's homes. And they would keep finding that, you know, there were inaccurate details about their home. One of our colleagues found that his home was listed as having one story when it actually has two. And if you think about that detail being wrong, it's definitely going to underestimate the cost of rebuilding.

We're talking with Susie Nielsen, investigative reporter for the San Francisco Chronicle, and Megan Phan-Muntz, a reporter for the San Francisco Chronicle who covers California's home insurance crisis. And we're talking with you, our listeners. I see your comments and calls coming in. Do you have a story about your home being underinsured? Are you a wildfire survivor? Have you faced difficulties rebuilding your home? What questions do you have about getting the right level of home insurance coverage?

Email forum at kqed.org or find us on Blue Sky, Facebook, Instagram, or threads at KQED Forum. You can call us at 866-733-6786, 866-733-6786. After the break, we'll talk about why insurance companies would want to give lower estimates. Stay with us. This is Forum.

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You're listening to Forum. I'm Mina Kim. We're talking about a San Francisco Chronicle investigation this hour, looking at why so many people find themselves underinsured and unable to rebuild after a wildfire and why an algorithm is a big part of the reason. We're talking with Megan Van Muntz, who covers California's home insurance crisis for The Chronicle, and Susie Nielsen, an investigative reporter for The Chronicle as well. And

with you, our listeners who are sharing your own experiences around this at 866-733-6786. And let me go to Amy in Davis. Hi, Amy, you're on.

Hi. I can just hardly believe that this program is happening right now. Two days ago, I, after thinking for several years, I really should check on my insurance because it seems like we're underinsured. We own a small home in the least expensive zip code in Mountain View, and they're insuring our house for something like $500,000, which...

Anyway, it seems really underinsured. And so I asked, you know, when did they last check? You know, maybe it needed to be updated.

The last time it was run was in 2018. And so I said, oh, well, would you run it again? And she ran it again, which took about 15 or 20, 15 minutes. And they actually, what came back was that they wanted to insure me for even less.

Wow. Amy, thanks so much for telling us that story. And it really does lead into this question of why insurers would want to insure you for less, Megan, if they probably stand to get more revenue with a higher premium that they're charging their clients. So explain that to me.

Yeah, it seems really counterintuitive because you think of your insurance company raising rates and wanting more premium dollars out of you, and that seems completely out of touch with the idea that they want to be charging you less. What it comes down to, I think, is there are some people who will say, well, insurance is competitive, but it's competitive really at one level, and that level is price.

We talk around the store. You can go and watch commercials that tell you to go out and spend 15 minutes to save 15% or more on your car insurance and other slogans like that that are really pushing you to get a lower price and to think about insurance and choosing insurance as choosing the cheapest policy. So when that process happens...

you know, a big way that you can lower the price you're offering to consumers is by offering them less coverage. And if you're a homeowner who's been told to shop on price and not necessarily think about the coverage limit, then your insurance company who's telling you that policy might not be warning you properly that the reason their prices are lower is because they're offering you a lower coverage amount. The other side of this is maybe it's unintentional, but what they're trying to do intentionally is be faster, be more convenient. You know,

And theoretically, an insurance company could send out an inspector to your house and get a really thorough estimate about what's in your house, what does it cost to build that, you know, and giving you a really accurate replacement cost estimate. And some of them do, but that takes a lot of money. It takes a lot of time. It takes a lot of man hours. And so something that's a lot faster for them, like Susie mentioned, is to just look at your county assessor data and decide, OK, what's the cost?

What does that tell us about your house? But then we get into this issue where the convenience is in conflict with accuracy and some insurance companies and agents are choosing to choose the convenience over accuracy. Is there also a piece of this that ultimately you can make more money, Susie, um,

on lots of customers paying lower premiums than fewer customers paying high premiums. Absolutely. And I think, you know, you see different tiers of insurance companies choosing to do business in different ways. There are these high

hire kind of more boutique insurers that will give you really, really good coverage, but it comes at a price. And, you know, many, many agents earn commissions on the policies that they're able to sell. And so you see a lot of the times and we, you know, we have depositions in our investigation where agents testified in court that, you know, they had these incentives to, you know,

sell more policies. And we have also insurance company officials and higher ups talking about that as well, that there is this broader incentive to sell people policies that the more policies, the better. Although in California, actually now that's starting to change. So we're finding that in the current insurance crisis, a lot of these big companies are starting to pull out of the market. And so

Nowadays, it's more about fixing the issue that already exists, the fact that these algorithms are flawed, the fact that they're just by default underinsuring people. The insurance companies have no incentive to fix underinsurance now, but they may not have as much of an incentive to sell as many policies as possible in the current climate.

Well, Steve on Discord writes, are all the insurers using the same data set? What's the source of that data? And if they are all using the same bad data and or funded the creation of the data, could we be seeing collusion, fraud, RICO violations? So talk about that, Susie, just in terms of, I mean, one of the things that, one of the ways that you described these data or algorithms is as being, you know,

not just faulty, but also incomplete. So talk to me a little bit about what data tends to be missing or sort of auto-filled specifically that you were finding that even insurance companies were fully aware of and encouraging the use of sort of pre-filled data and so on. I just want to get a better sense of how the agent would use this tool in practice. Absolutely. So one of the

big kind of pivot points in Megan's and my reporting when we thought that we would really want to have some time to dive in on this issue is when we obtained this trove of internal corporate records from Farmers Insurance Group, which is the group that insured the Salazar family. We found basically it was this big trove of records that had been unearthed in an attempted class action lawsuit against farmers. And we found that from those records, farmers

company employees had been made aware as early as 2015 that their agents were routinely failing to validate some of the most important features, according to Verisk, that go into valuing a home. So those include the square footage and the percentage of the basement that's finished, several others. But these agents were not asking the homeowner about them routinely. And the report by these farmers' employees

They basically found that because of this, 360 value was producing routinely inadequate estimates for wildfire survivors. And in fact, they looked at this whole group of policies of homeowners that had lost their homes, and they found that all but one of them were underinsured. And they continued to investigate this, and they talked about how these agents were continually failing to verify this pre-filled data that the tool was just filling in. And

Even so, in 2017, after the fires in wine country, the farmers' employees realized that they were about to be hit with a bunch of complaints from survivors and they

And according to our reading of these documents and our conversations with attorneys, decided that they did not want to continue to investigate the issue internally because they were worried about creating a paper trail. And so they terminated their investigation. So these types of things are how you know and have been able to determine that these companies are knowingly using a faulty algorithm and encouraging essentially fraud.

Low-ball estimates. Yes. Yeah. And another thing that Megan and I found pretty early on was that three of the four insurers that we were looking at, State Farm, USAA, and CSAA, were all investigated by the Department of Insurance for how they set policies. And in all three of those cases, the Department of Insurance found that these companies were using 360 value in ways that

that automatically reduced, created lowball estimates for consumers. We found a case in State Farm where an agent re-ran 360 value 26 times on the same home, and the resulting estimate that the agent went with left the homeowner underinsured by, I think, almost $100,000. We found cases like our caller earlier where an agent re-ran 360 value on a home that didn't have it,

And then the coverage limit went down. So we are seeing this. Yes, insurance companies have been made aware of this for years. All of these companies have also been sued by homeowners alleging underinsurance via 360 value. And that gap between the rebuilding cost estimate and the 360 value estimate, typically how wide is that gap?

There are some studies that have looked into this. So we looked into this study by the University of Colorado and University of Wisconsin following the 2021 Marshall Fire. And they looked at the difference between a construction, basically what they said was the most likely estimate to rebuild a house versus the coverage limits. And they found that three quarters of people were underinsured in that study and underinsured

One quarter of those were severely underinsured, which they said was 25 percent underinsurance or more. We believe that in California and the researchers told us that the issue could be even worse, that California survivors are even more steeply underinsured because the cost of living and cost of construction here is so high.

Well, this is Norm. Blue Sky writes, similarly, could people even afford true replacement cost insurance? Banks force homeowners to buy insurance to protect their interests. How could they allow such a gap between what the policy will pay and the true cost of replacement? Do you hear this from insurers that basically they say some is better than none and we're making it affordable for the consumer, Megan?

I think we've definitely heard, and the response from the industry has very much been, well, the homeowner wants a cheaper premium, and that's why they're paying for this. And it is true, at the end of the story, we talk about that in California's current insurance crisis, Mike Kubo, who leads the story and who lost his home in the 2020 CZU fire, can't afford to be fully insured even after going through the experience of being an underinsured wildfire victim. And so

I think we talk a lot about how the cost of insurance is going to go up at large because of things like our wildfire risk going up, climate change happening, especially in today's environment when we have tariffs that are certainly going to impact the cost of lumber, immigration policies that are impacting the labor market. Costs are going up and all of that is flowing into increased insurance costs.

But at the end of the day, the price of coverage actually doesn't increase one-to-one with your premium. As you buy more coverage, it gets a little bit cheaper, the rate does. So, consumer experts tell us the

The difference between being fully insured and not being fully insured, sometimes it's just a couple of hundreds of dollars. And so there might be homeowners who say, you know, I think my risk is low. I'm fine being underinsured. But for those who want to make sure that they're fully insured, you know, it really is a big

incredible investment and one of the most important things that you can do to protect yourself against the risk of wildfires. And these consumer advocates have essentially found that people are willing to pay a few hundred dollars more to protect, like in the Salazar's case, their biggest asset. Yeah, absolutely. One of the striking things we found is

When requesting data from the Department of Insurance, 90% of all California homeowners as of 2021 paid for that extended replacement cost coverage, which is, I think, the best indication that people want to be fully insured and they're willing to pay extra for it. Let me go to caller Brandon in Foster City. Hi, Brandon. You're on.

Good morning, everyone. Thanks for taking my call, Mina. I have two questions. My first was, I was curious, Megan, if in the study, when you find an overage with a subscription, you're able to get the subscription to QQuest or whatever the company was, you could find out. The reason I called it is you could use statistics and quantify it.

with a p_ value and uh... to find out how many you know you know how many instances of uh... overage there was and how many of the bit of of under charging there was and you know in in terms of that one house calculation where they had a mistake where there is one florida when in reality there were two and you could find out the amount of dollars uh... over and under and

apply it the toothpick to it and get really quantified you know quantified out i would think that if you had to i was curious if you guys had done that and if not i mean just going to any local college in finding a somebody a graduate student years did it fix department i don't know about an old hypothesis and p_ value that was my first question if they'll have any kind of the typical data like that then then then quantified on on the on that result my second comment briefly i'll take the popular it's just

i think that the yet another example of why we need to get rid of the profit motive in all insurance especially health care but here's yet another example i don't think you'd find such difficulty if we didn't have like the profit motive i really feel like that is the confounding factor here you know like if you just had the scale of a government

entities which is we the people that is not out to make profit make you know should satisfy shareholders and paid to you know bonuses but just out to do the best job possible it is i mean we i a i we have on the brink of quantum computing we have all the technology you're gonna tell me that people don't have enough faith in we the people being able to do this without the profit motive

confounding the results. Anyway, I'd like to hear about the statistics. Thank you. Brandon, thanks. Megan, you first. I know you both have things to say about this. Yeah, I'll start backwards. I think as an insurance reporter, someone who talks every day with homeowners, but also with insurance company executives, I think a really interesting quandary that you're picking up on here is the fact that for homeowners, insurance is a public service. It's something that restores us after disaster strikes. It's something that allows us to have mortgages, allows us to access homeownership.

especially in the Bay Area where it's so expensive. And yet for these companies, it's a private model. Some of these companies are publicly traded, and so they're competing against the rest of Wall Street in terms of attracting investors.

And I think experts are continuously saying, as we think about how to solve California's insurance crisis, that quandary is something we really need to ask ourselves about because there are these competing incentives and a lot of different people who have stakes in them. And how do we resolve that? And how do we sort of come together and find a solution as to how we protect the public service aspect of insurance in the wake of knowing that these are private companies that are operating for profits? But going back to the statistics, I think

Something interesting to highlight in the piece is that there are states that have done studies into this, have done studies into how often coverage limits are increased.

are insufficient to pay for wildfire victims, have done studies into trying to look at, you know, how many wildfire victims and empirical fires are underinsured. But California has actually never done that on a statewide basis. And it's one thing that, you know, at least we think would be a really interesting project for the state to embark on is we have so many of these wildfires. We have a huge two of them that just happened, you know,

Having that data and using that to figure out exactly how often are these algorithms wrong and also how much are people being underinsured because of that. Have you been able to look at anything that gives you some sense of the picture, like with regard to complaints to the state's insurance department, for example, after people are finding they're wildly underinsured?

Yes. We found that since the early 2000s, there have been nearly 900 complaints about underinsurance submitted to the Department of Insurance. But our experts have told us that that really doesn't capture the true scale of underinsurance because most people never formally complain. I don't think we talked to many people in our reporting, even many who are very underinsured, who decided to file a complaint.

And, yeah, I mean, in terms of the motives and the fact that, you know, why are all of us so underinsured? One thing that Megan and I didn't really get into in our reporting so much, but there used to be this thing called guaranteed replacement cost coverage, which some homeowners still have. And insurance companies would basically write you a policy that guaranteed replacement.

you to replace your home. If your home burned down, you could replace it and they would just give you as much money as you needed to rebuild the home. But following several major disasters in the 90s, including the Oakland Hills fire in our backyard, insurance companies took really heavy losses from those policies and realized they, several shut down actually. And many of them have since disappeared.

discontinued those guaranteed replacement cost policies. And, you know, some states like Colorado have looked into trying to bring guaranteed replacement cost coverage back. We're not sure whether California will be able to do that in the current crisis, but it is something that, you know, if you're able to get a guaranteed replacement cost policy, that is the gold standard.

Nadine writes, I've been a homeowner in the East Bay Hills for two and a half years, and I'm fairly certain that I'm underinsured for the same reasons you've been discussing, outdated algorithmic data. I should probably up my coverage, but with the trigger-sensitive insurance companies on the other end, I'm loathe to even broach the subject for fear that they will decide to cancel my policy simply because I've brought it to their attention. Sadly, I feel like the less noise I make, the safer my insurance coverage will be.

And Taryn writes,

She sold us an extension policy that gets us closer to actual replacement costs, but we are still approximately $250,000 short. We have started saving up a fund to cover the difference in the event of a disaster. We just hope it doesn't come too soon. We'll talk about how customers can advocate for themselves after the break. Stay with us. You are listening to Forum. I'm Mina Kim. ♪

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Welcome back to Forum. I'm Mina Kim. A new Chronicle investigation finds, quote, profound levels of under-insurance now surface after nearly every major blaze. From 2007 to 2020, the consumer advocacy group United Policyholders collected post-disaster surveys finding that anywhere from 42 percent to 66 percent of survivors, these are in Western states, who responded said they were under-insured.

We're talking with Susie Nielsen, investigative reporter for The Chronicle, and Megan Fann-Muntz, who covers California's home insurance crisis for The Chronicle. And we're talking with you, our listeners, at 866-733-6786, at the email address forum at kqed.org, or on our social channels, Blue Sky Facebook, Instagram,

Instagram threads at KQED Forum. Do you have a story about your home being underinsured? Are you a wildfire survivor? Have you faced difficulties trying to rebuild and cover that cost? What questions do you have about getting the right level of home insurance coverage?

So, Susie, I'm wondering, what can people do at least to find out for sure if they're underinsured without necessarily, you know, calling the insurance company, as one of our listeners was concerned about doing, because they felt they were fortunate to have a policy and coverage at all? Oh, Mina, that was really heartbreaking for us to hear, I think, both Megan and me, because we've actually heard this from homeowners as well, that they're afraid to talk to their agent because they're worried that they're going to be dropped if they ask for more coverage. Right.

So we outline a lot of steps that homeowners can take in a story, actually, about what to do to find out if you're underinsured and then what to do about that. One really relatively easy thing that you can do is kind of just look at your coverage A limit, which is probably in the first few pages of your insurance policy, and then look at what that gives you per square foot to rebuild. So...

You know, in one of the homeowners stories that we talked about, the homeowner was initially given a policy that gave him only $190 per square foot to rebuild, which any contractor can tell you is not enough in California. You know, in L.A., they're starting to see $800.

to $1,000 per square foot to rebuild. In the Bay Area, it's maybe not quite that much, but it's going to be upwards of $500 a square foot. So look at your coverage limit, see what it gives you per square foot, and then if it seems really low, that may be a time to reach out to your agent. We have also talked to many contractors that have said that they'd be willing to provide an independent estimate for homeowners who are willing to do that. There are contractors that actually offer this service for a small fee,

And there are other algorithms, actually, that presume to be more comprehensive. We haven't done a ton of reporting on those yet, but those are a few things that you can do. And then you can also ask for, you know, if you don't want to recalculate your coverage A limit or ask your agent to do that, you can always ask for more extended replacement cost. So most companies...

offer extended replacement costs up to, I think, about 50%. So even if your coverage A limit is way too low, you can get another half of it on top of that. And that can go a long way towards making up the gap. It may not make up everything, but maybe you'll be underinsured by $100,000 rather than $400,000, for instance. So those are a few other, a few ways that you can start to tackle this issue. Let me go to caller Mary in Sunnyvale. Hi, Mary, you're on.

Hi. We had a one-and-a-half-story two-car garage with a bathroom in the back of our lot in Sunnyvale, and it caught on fire the first week of COVID in 2020. And, of course, nobody was around, but the problems we had is we were an old county area brought into the city, but they had not upgraded our fire hydrants, so the hydrants didn't work properly.

They had to break down all of our fences to get the fire hoses from another street behind us. Anyway, we lost our garage, everything, within four and a half hours. And, of course, I'm dealing with everyone from...

on their phones no one is in offices our appraiser was from back east and our windows in the back of our home were broken and we had to have it the house repainted and she said oh no that's much too high so i wrote to the state insurance commissioner and he said no they have to pay and

So, what I want to tell people is when I looked at our insurance, I thought our two-car garage was covered. And we had lived in this garage when we remodeled our house. Well, when it says exterior building, that does not mean your fences, your pavers, your plants, everything outside of your home. Mm-hmm.

Mary, that's a good thing to note. And I'm sorry you had to go through that experience to learn that. Thanks so much for calling, Mary. Let me go to Phil in San Francisco. Hi, Phil, you're on.

Hi, thank you. Our house burned down in the Atlas Creek fire of 2017, completely destroyed, and we rebuilt. And there's some things that your listeners should know. Number one, your dwelling A says to rebuild as it was at the time of the fire. Our house was built in 1968 before Title 22, Title 24, any of the Calhoun, any of the current codes.

So you need to make sure you have replacement costs that brings that allows you to bring your house up to the current building codes. Number two, you need to document everything inside your house. We had slate floors, not linoleum floors. We had custom made cabinets, not cabinets off the wall from Home Depot. We had double pane tempered.

proof windows, all those things can be documented. Doesn't matter what variance says, if that's the name of the company. If you have all that in writing and you have your contractor show that that's what they put in, they have to insure it up to the limit. Number two, you can use other parts of your insurance to pay for your house. There is a loss of use, personal property and other structures. You can use those other components, B, C and D, to help rebuild your house.

Well, Phil, thanks for sharing that from your own experience as well. Let me take one more call for now. Delane in Oakland. Hi, Delane, you're on. Hi. Um, I lost my, our, our home. Um, it was, uh,

destroyed in the Keller fire. And that was back in October. And we were grateful that it was just our home and that wildfire and not others. However, we learned that we were the initial assessment that was made in terms of the damage done to our home. We were under-assessed.

And so what I would say to anyone who suffers a fire is to make sure you get your own assessor. When you have a fire, you just think the insurance company is your friend and they're going to provide you with everything and everyone that you need, including contractors.

but really you have the choice to be able to select those people. And if you don't, they work for the insurance company and they will devalue because the insurance company is looking at every way to undercut you. So we found that while we had the insurance, we were...

We were still not given the proper assessments, and we are still fighting because right now with our personal property, our home has been broken into several times. We have lost not just in the fire but also to theft, and the replacement cost is significant.

so low that there's no way that we can replace those things that we lost. So now we have to fight the insurance to get that, to try and see if we can remedy that in some way. We have contacted the Department of Insurance, which has been incredibly helpful, but I do wish there was someone who could help us specifically with

understanding replacement costs and how to really, um, you know, win this battle with the insurance company. Again, they're not your friend, get your own people to make assessments, especially write, um,

out of the gate. The restoration company that came in, who we thought just with the name restoration was going to help us really took a lot of items that were not destroyed in the fire, but they deemed them as just as not being replaceable. And so now we don't have those items and we can't replace them. So it's just so important to not make quick decisions, but to

go to the Department of Insurance maybe initially or to the United Policyholders, which is an advocate for those who are in suffer fires. Oh, Delane, thanks so much for calling in and wanting others to benefit from what has been such an unfortunate experience for you so they don't have to go through that hopefully as well.

Megan, I'm struck by Susie mentioning earlier that there were, you know, some 900 or so complaints, so probably an undercount in terms of people experiencing things that warrant a complaint over the course of several years. Has the state responded to them in a meaningful way yet?

Yeah. So the next installment of our investigation, we'll get into the saga of how those complaints really started to come in in 2003 when we had the Cedar Fire in San Diego, along with several other large Southern California wildfires that destroyed thousands of homes. And at the time, the department and the legislature started working on this issue. They implemented changes like if you look at your home insurance policy, you get a disclosure form and it'll warn you about some things like

the surge in reconstruction costs after wildfires. And again, after the 2017 wildfires, you know, there were the investigations that Susie mentioned and also efforts in the legislature to get the industry to update these estimates more frequently so that you wouldn't have cases where someone was underinsured because their estimate hadn't been updated in decades.

But, you know, running through all of this is sort of this pernicious piece of case law in California that says that at the end of the day, the homeowner is responsible for how much coverage they buy, except for in very select circumstances. But, you know, that law, which the Department of Justice in California actually has tried to get delisted, has tried to get the courts to sort of take it

down in status, so it's not as binding case law in California, really means that all of these efforts are sort of thwarted by the idea that the courts still say your insurance company isn't responsible for giving you an accurate replacement cost estimate. And there's only so much that the Department of Insurance can do in those cases. Let me go to caller Alan in San Francisco. Hi, Alan. You're on.

uh... quite thank you yes uh... the quick question i was wondering if it would be possible to compel insurance companies to include as part of the uh... coverage policy that the documentation uh... an estimate of the uh... the data that came from the algorithm that is responsible for putting the premiums uh...

it seems that uh... the homeowners are unaware that uh... two-story house with look at the one story or that uh... finished paper and with look at the non-finished basement and if that document the name of the algorithm and the data that the algorithm produced what part of the policy then the inch be insured

the buyer of the insurance would have an opportunity to question the replacement estimate. Helen, thanks.

Are there moves to require that? Yes, and thank you. I'm really appreciative to this caller for bringing this up because I should have mentioned it back in the earlier question of what can you do about this. So under California law, you as a homeowner are entitled to getting a copy of your replacement cost estimate from your insurer. So you can today request your 360 value report if you are insured by one of the companies that we looked at, or there are several other algorithms that companies use.

ask your agent for a copy of this. And what will probably happen is you'll get this more detailed report that shows the data that goes into it. And then you can ask to update certain things. You can find if there's inaccuracies the way that our colleague did when he found that. I don't know if he's reached out to his insurer yet, but the way that he found that his home was listed as one story instead of two. You can find those issues yourself and then reach out to your agent about them.

In terms of the rest of the data, more broadly, more globally, we did ask Verisk and other insurance companies. We asked them for more information about this. And specifically, we asked Verisk for any studies it's done on levels of underinsurance and any data that they would be willing to share with us. And they challenged our findings, but they refused to provide any of their own internal data. They said that it was proprietary and confidential. And so we are not allowed to look at it. But

You know, theoretically, these insurance companies have tons of data on underinsurance, on what values are most important to determining these accurate replacement costs. They just are not sharing them with the public. I was also struck by when you spoke with Verisk about their 360 value tool that they said that the tool should be used in an advisory capacity. Yeah, so that is definitely their contention. And, you know, they say that it's

a place to begin the creation of an estimate, not a place to estimate, I guess. But what we found over and over again is that, you know, in its instructional materials, it says the tool is easy to use. You can create an estimate in minutes without any training. And that's how agents use it. Most of them don't take, you know,

hours to talk to the homeowner about their replacement costs. Most don't use it as one part of a many-layered system. They're using it as the stopgap, as the primary measure. They're taking a few minutes to spit out an estimate. And, you know, that's not fair to all agents. Many agents are very diligent and

We spoke with many who said that they do a lot to verify these estimates, but it's not built into the tool as a process, I would say. So that is maybe where the problem is.

Let me remind listeners you're listening to Forum. I'm Mina Kim. Casey on Discord writes, is there any transparency regarding what the risk pool is and how that relates to the actuarial calculations for premiums and payments? Is it fair to compare home insurance to health insurance and that a combined risk pool like under a single payer system would ultimately reduce costs across the board while ensuring more consistent coverage? I ask because each time this comes up, I'm feeling like we're just cooked, Megan. Yeah.

It's a common feeling, I think, especially when you're in California. So in terms of the rates, the Department of Insurance's main purpose in many ways is to oversee how rates are being applied in California. And their mandate is to look for three things to make sure that the rates are not excessive, that they're not overcharging people, that they're not inadequate, that an insurance company isn't driving themselves into the ground, and that they're not discriminatory. But I

I think we've seen a lot, you know, as climate risk has gone up, not only in California, but also in Louisiana and Florida. Now we're seeing all these disasters in the Carolinas. There's been, you know, people beginning to ask at the federal level and in Congress, including now Senator

Senator Adam Schiff, do we need to move to a federal insurance program where we've standardized that risk across all of the United States instead of, you know, the current system we have where insurance is regulated by state? Because, you know,

You know, one might imagine that in California, you used to be able to balance the risk of a home in the Sierras with one in the Central Valley. But now we're seeing that disasters are happening across the state, whether it's wildfires, whether it's flooding, whether it's atmospheric rivers. And so I think it certainly is a debate that's beginning to get more credence in different places of maybe the current insurance system for home insurance doesn't work anymore.

Megan, can you help me understand what it does to the rebuilding or restoration of a community when such a large percentage of people are underinsured and unable to rebuild their homes? Absolutely. You know, I think it means that these communities get wiped off the map in many ways. Susie talked about in Grizzly Flats, you know,

That, for me as a reporter, was the first time that I went to a wildfire zone years after a fire had happened. But you couldn't tell that it had been four years because there were just almost no homes there. The Salazars were really one of the only ones, and even they had manufactured homes. It was just...

empty lots with overgrown grass across them and every once in a while you'd see a white trailer. And when you go back to places even like Paradise, I mean, Paradise and the Campfire are a very different story from Grizzly Flats because they had a lot of FEMA aid. There was a lot of focus from the state, you know,

Grizzly Flats and the Calder Fire happened during COVID. It happened during several other fires going on, so there wasn't as much attention there. But even with all of that attention in Paradise, there were still lots of homeowners there who were underinsured, who couldn't rebuild or who had to, you know, we went through a lot of

We went out there and I spoke with a couple who is currently like the Gruber's rebuilding their home by hand because their insurance wouldn't pay them nearly enough of what it would cost. So I think it's the disruption of these lives on a personal level, the complete disruption of your personal financial security. But it's also these long lasting impacts on a community that may never come back. You might never have the same character, the kids running around between different houses and and

And so it really delays recovery across the board in a lot of ways. And you can even see that when you go back and look at rebuilding statistics in Paradise. Only about 2,500 homes out of the 11,000 that have burned down have been rebuilt. In Santa Cruz County, several hundreds burnt down. About 150 of them have been rebuilt. Yeah. I think you use the term stalls or stalled out.

That's where these communities are. Well, Megan Phan-Muntz, really appreciate you coming on to talk about this. Reporter for the San Francisco Chronicle who covers California's home insurance crisis, Susie Nielsen, investigative reporter for the San Francisco Chronicle. So appreciate having you on as well. Their piece is called A Broken System is Keeping California Homes Underinsured. Millions have no idea they're at risk. My thanks to Mark Nieto for producing this segment and to listeners. I'm Mina Kim.

Funds for the production of Forum are provided by the John S. and James L. Knight Foundation, the Generosity Foundation, and the Corporation for Public Broadcasting.

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