Good Question: What Can We Learn About Insurance From Colorado's Worst Wildfire?

BOULDER, Colo. (CBS4) – “Here’s a chop saw,” said Jack Thompson as he sifted through a pile of melted metal. Much of it looked like puddles. Some had tire imprints. For some reason, the metal that melted off his burned truck took on the impressions of tire treads, which you might have thought would have turned to liquid rubber long before the metal from his truck dripped to the ground.

Fires do funny things. There are all sorts of strange sights months after the Fourmile Fire destroyed 169 homes last year. Trees stand bravely in a few spots while in others, where the trees were so thoroughly incinerated, the fire burned down into the roots. It stands as the most costly wildfire in Colorado history.

In the aftermath the rebuilding has been slow. It may be never for some. Thompson is rebuilding, but not the home he had. He can’t afford it.

“I don’t have enough. If I tried to rebuild the home that I lost I wouldn’t have enough,” he said.

That’s because his insurance won’t pay enough for the whole cost to rebuild. Thompson was surprised, since it was’t the first time he’s lost a home to wildfire.

“That ridge right over there was where my former house was,” he said as he pointed a few miles away. “I built in 1978 and lost in the fire of 1989.”

That was the Black Tiger Fire. Things were different with his insurance then.

“We had a full replacement cost policy that the insurance companies stopped issuing in the 1990s,” said Thompson.

That meant when the final amount was tabulated for replacement of his home, the insurance company paid all of it. Not any longer.

“We are finding that most consumers are underinsured,” said John J. Postolowski, interim commissioner of insurance for Colorado.

Garry Sanficon, who heads the Fourmile Fire recover center, said, “Over 60 percent of the people we’ve surveyed, out of the 169 people that lost homes, are underinsured by an average of $195,000.”

That means there’s not enough there to rebuild. Sanficon believes the problem started when people sought out insurance in the first place and sat down to get an estimate from their insurance company.

“The software that they use, they plug in the numbers and it spits out this number that the insurance company believes is accurate, but we’ve found through this process that it is drastically understated,” Sanficon said.

“What people really need to know is, insurance isn’t a blank check, it’s proof of loss,” said Carole Walker, Executive Director of the Rocky Mountain Insurance Information Association, an industry group. “A lot of people think about their value in the house as the market value.”

When Thompson lost his home in the Black Tiger Fire, the payouts were greater.

“And that really went by the wayside after Hurricane Andrew (in Florida, 1992), the Oakland Hills fire (in California, 1991),” said Walker. “Where people had bought insurance and 20 years later, they had a fire or a hurricane destroy their home. Insurance companies almost went bankrupt over that because they weren’t taking enough premium to pay out claims.”

Insurance industry critics claim the companies are trying to insure more homes by keeping rates low, rather than ensuring that coverage is sufficient. Postolowski said not enough people checked to make sure coverage would cover everything they had or the high cost of rebuilding in the mountains.

“They’re not checking their policies annually to make sure they have adequate coverage,” Postolowski said.

Sanficon says he got a statement from his insurance company showing exactly what his coverage would be worth and it wasn’t enough.

“To the credit of the insurance company it’s in large numbers that the policy provides $109 per square foot to rebuild my home,” Sanficon said.

He found he would really need about double that and increased his coverage.

If you want to be sure your coverage is enough, check with a builder before you insure. They make sure you inventory your home. There’s a link to the state’s checklist included at the bottom of this article, so you can do it online.

“Many of them did not have an inventory of their household items, so they could not prove that they lost these articles in the fire,” Postolowski said.

And he added that you should check the type of coverage.

“If you have replacement cost coverage, they must pay you to get the same like quality … at today’s prices. If you have actual cost value, they will pay you for the cost … less wear and tear.”

You may need riders for more valuable items. That’s a pain because that could cost you too. But if you have a valuable antique, you might want to spend the money. And keep receipts for the big stuff like those flat-screen TVs.

Note that insurance companies also base rates on the fire department’s ISO rating. That is a ranking that you might even want to check before buying. It takes into account – among other things – how long it’s likely to take your local fire department to get to your house if it’s on fire. If you live in an area with a 10 rating, that’s “No man’s land,” said Walker. If you live in an area with a rating of five or below, that’s more like an urban department where you can expect them to get there and put the fire out quickly.

Thompson is rebuilding. Smaller, but he’ll stay put in the mountains.

“And we’re not going to get burned out again because there’s no fuel,” he said, looking out at the barren hills.

Link: Home Inventory Checklist

Comments (2)
  1. RMB says:

    It is the responsibility of the home owner to make sure that the “replacement” amount of their fire insurance is adequate for the current economy. Being under insured is not the fault of the insurance companies.

  2. George Blakey says:

    It is, of course, always the responsibility of the one who’s lost something, but to expect all homeowners to get an estimate from a local home builder for the cost to rebuild their house every year is ridiculous The insurance companies surely have vast amounts of data on what houses all over the country have cost to rebuild. They could easily send a current price range for the cost to rebuild, based on square footage, to each homeowner with their bill, once or twice a year, and suggest that the insurance coverage be adjusted to be able to meet the estimated rebuild cost. The owner could look at the estimate range, and if not convinced that it is correct, then check with a builder for a more accurate estimate.I would think that the amount that the insurance companies would make from people increasing their coverage just from the suggestion to do so would cover the cost of producing the data fro each customer.

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