According to a longtime insurance agent, about 10% to 15% of homeowners are underinsured.
Underinsured homeowners have policies with coverage limits that are too low to fully cover the cost of rebuilding their home in the event of a major damage event like the Eaton Fire, which decimated homes in Altadena.
“Lately we see a lot of people that are underinsured,” said the agent, who has been in the industry for nearly 30 years and did not wish to use his name.
Underinsured homeowners could end up responsible for a significant portion of the rebuilding costs out of pocket.
Key factors that can lead to being underinsured include choosing a policy based on market value instead of replacement cost and not considering the potential costs of rebuilding to current building codes.
According to residential designer and Altadena resident Steve Lamb, that is going to be a problem.
“Even the houses that were remodeled or redid 10 years ago,” Lamb told Pasadena Now. “They are not up to code. Mostly the current code requires fire hardening, even though that all failed. Those are more expensive than wood and I am sure none of the electric wiring is up to code.”
To make matters worse, some people cancel their home insurance after the home is paid off or find a lender that does not require homeowners insurance.
According to Lending Tree, 10.5% of California homeowners, or 806,600 people, are uninsured out of the state’s 7.66 million homes.
Homeowners insurance is not required by law in California, and in many cases, people cancel policies after mortgages are paid off.
But even those who want it are finding it hard to get.
Additionally, it could be difficult to obtain insurance in California.
Allstate and State Farm have made it increasingly hard for some homeowners to get policies.
State Farm stopped writing new policies for California homeowners, and Allstate limited its policies. The Department of Insurance approved rate increases totaling 34% and 30%, respectively. According to media reports, those actions were taken due to a number of factors, including the rising cost of rebuilding homes and the increasing frequency and severity of natural disasters, including wildfires. Several other insurers have also announced plans to limit new policy offerings.
Allstate is California’s fourth-largest insurer and provides coverage for 350,000 homeowners. In September, State Farm projected that it could drop more than 1 million California policies over the next five years due to impending financial instability.
The move forced many cities to declare a crisis.
Last year, the City Council approved a resolution that called for California’s Governor, Insurance Commissioner, and State Legislature to take immediate steps to stabilize the state’s property insurance market.
Legislation was later passed requiring insurance companies to cover homes in areas prone to fires.
Many people in fire zones who have had problems acquiring insurance now have California FAIR Plan insurance.
The FAIR Plan is an insurance program of last resort for homeowners unable to obtain fire coverage in the private insurance market.
Despite claims that the FAIR Plan is run by the government, it is not. FAIR Plan insurance is, in fact, financially supported by the state’s private home insurance companies.
But recent upheaval in the state’s insurance market has left the FAIR Plan bulging at the seams.
The plan now has more than 400,000 members, a 164 percent increase from 2019.
But problems could be on the horizon.
“In a statement to a state legislative committee in March 2024, FAIR Plan President Victoria Roach stated, ‘We are one event away from a large assessment’ and ‘there’s no other way to say it, because we don’t have the money on hand [to pay every claim] and we have a lot of exposure.'”