California Wildfires followed by Fraudulent Claims

California Homeowners Insurance Industry devastated by Wildfires followed by Fraudulent Smoke and Ash Claims

California Wildfires & Fraudulent Claims – California homeowners are in the midst of an insurance crisis as the frequency and intensity of wildfires worsen; until just a few years ago, insurance carriers had a published Hazard Area map which would be checked before insuring a home. With modern technology, the traditional physical map books were replaced by digital mapping and a pre-determined acceptance or denial system simply by entering the location address.  During the past 15 years, there have been a few brush fires which have lasted more than a couple of weeks sending smoke into the atmosphere and spreading miles away from the burn area; this caused underwriting groups to devise smoke modeling systems to calculate the common prevalent wind direction in areas and further calculate whether a home/risk should be accepted or denied for insurance.

In an honest world and with our available technology, one would think that underwriting became easier and risk became more predictable; but we may have ignored the 800 lb elephant in the room – FRAUD.  With a growing population, a competitive legal industry and public adjusters seeking business, it doesn’t come with surprise that the aforementioned advertise their services following catastrophic events; in order to expand their enterprise, the marketing area is expanded thereby providing unsuspecting homeowners (in some cases several miles from the burn area) a false hope that they will receive assistance to uncover invisible smoke damage to their home and receive money from their insurance company.

Many homeowners insurance companies have withdrawn from California leaving very few carriers interested in underwriting insurance in the state. Luckily, some carriers have elected not to non-renew current policies where other carriers have decided to completely withdraw by non-renewing all policies in order to mitigate risk to their book of business.  Insurance companies rely on actuarial firms to extrapolate data in order to estimate future revenue based on current trends; it is fair to say that carriers have had an unacceptable loss ratio for the past few years. Carriers rely on low loss ratios in order to generate the small percentage of allowable underwriting profit by the Department of Insurance.

If loss ratios are above acceptable standards, the insurance company has the following choices:  1) apply for a premium increase  2) tighten underwriting criteria 3) withdraw from accepting new business 4) non-renew policies and withdraw from market.

The heaviest impact has been felt on homeowners in beautiful hillside communities; many of these homes are no longer insurable leaving homeowners the only option of applying to the California Fair Plan which is a Dwelling Fire Policy without the option to purchase Personal Liability, Water Damage & Theft coverage; this is an expensive option and in many cases costs more than the premium of a traditional homeowners insurance policy. If the homeowner wishes to have more comprehensive coverage similar to that of a homeowners insurance policy, an additional Difference In Conditions (DIC), aka Wrap-Around, policy would need to be purchased.

A report was recently published predicting the wildfire risk in California will continue to grow over the next 30 years from a deadly combination of higher temperatures and lower-than-normal rainfall.

California homeowners seek a better-functioning insurance market, additional regulations may cause insurers to look elsewhere for business, industry activity during the past 6 years has led to insurers fleeing the state. This year alone has seen the departure of American Insurance Group from California and a significant reduction in insurance offerings from Chubb. These are two major insurers in the country and both companies cited burdensome regulation in their decisions.

A major insurance company has utilized their Special Investigations Unit to uncover a large number of fraudulent claims that were reported for smoke and ash damage by the same public adjuster; this led to a further investigation. Many homeowners were unaware that a homeowners insurance claim had been filed on their policy, it was found that thousands of dollars were promised to homeowners in return for signing a document to allow them to inspect their home and take a soil sample in some cases. Many of these affected homeowners were non-English speaking while others were elderly and didn’t understand what they were signing; in fact, they were signing a representation and settlement contract.

We believe that most homeowners are honest people protecting their homes and would not knowingly partake in taking advantage of the insurance system; however, who can you blame when there is a systemic legal attempt to try the insurance system following an already catastrophic event?

The following tips may prove to be valuable for homeowners:

• Never sign any document which you don’t fully understand.
• Never give your insurance policy information to anyone.
• No stranger should be allowed to inspect or work on your home without full disclosure of the scope of work and the fee you are responsible for.
• Never take for granted that your insurance company or the government will pay for services rendered even when a convincing vendor tells you so.
• Contact the Claims Department of your homeowners insurance company with any questions about coverage prior to signing any document.

HDA Insurance Brokerage is a national provider of property insurance products representing various insurance companies specializing in Homeowners, Landlord, Condominium, Townhouse & Commercial Lessor’s Risk Insurance.