Wildfire claims flooding insurers
Adjusting is labor-intensive for fire insurance, meaning delays in reimbursement, veteran attorney says
California’s deadly wildfires have already sparked tens of thousands of claims with insurance companies, and experts warn the reimbursement process ahead could frustrate many home and vehicle owners.
Fires have damaged or destroyed more than 7,000 structures in several counties in the state, according to California Insurance Commissioner Dave Jones. Residents are leaving evacuation centers to figure out what they’ve lost and begin the long road to recovery.
Preliminary data from eight California insurers, which are processing claims for tens of thousands of policyholders, reflect $1.045 billion in losses fromthe devastating fires, including commercial and residential structures, personal and commercial vehicles, and agricultural equipment. Those figures are expected to rise, the commissioner said.
“These numbers are just the beginning of the story as one of the deadliest and costliest wildfire catastrophes in California’s history,” Jones said. “The tragic death of 42 people and over a billion in property losses are numbers — behind these numbers are thousands of people who’ve been traumatized by unfathomable loss.”
Two big insurers— Farmers Insurance and State Farm Insurance— said they have received about 7,000 claims so far in connection with California’s infernos. The vast majority are linked to the blazes in the North Bay and are homeowners’ insurance claims, officials with both insurers said.
Homeowners now face a forbidding journey to recoup losses from their insurers. Reimbursement could be slowed if insurers’ capital is spread too thinly among the fire claims and other recent natural disasters, and homeowners may have unrealistic expectations about reimbursement without having read into the fine print of their policies, experts warn.
“Fire insurance claims processing is particularly labor intensive,” said Ivo Labar, an attorney with San Francisco-based Kerr & Wagstaffe, a law firm whose specialties include insurance law. “We will see a lot of delays and a lot of unhappy homeowners in the coming months.”
Even worse, other recent natural disasters, including brutal hurricanes that drenched Texas and Florida and ravaged Puerto Rico, may pinch the reserves of even major insurers, warned Lydia Ortega, a professor of economics at San Jose State University.
“No insurance company could have imagined something of this magnitude,” Ortega said. “Even with all their goodwill, it’s possible the insurance companies will not be able tomake the process relatively painless. If their estimates fall short of predicting the magnitude of this, they might not be able to pay fully. The sheer scope of this could not have been predicted.”
Based on the experience of one insurer, State Farm, the number of claims will almost certainly soar.
Last week, State Farm reported it had received 2,100 homeowners’ insurance claims connected with the California wildfires and 800 automobile claims.
By Thursday afternoon, State Farm had received more than 4,300 claims, including 3,220 homeowners’ claims and 1,100 vehicle claims, said spokesman Sevag Sarkissian.
In less than a week, the total number of State Farm claims rose 49 percent.
“State Farm deals with catastrophes throughout the country year-round,” said Sarkissian. “This is what insurance is for. This is what State Farm is prepared for. We are responding to customers’ needs in the North Bay region and around the country.”
Farmers Insurance said that as of Thursday, it had received about 2,700 claims in connection with the North Bay wildfires. The vast majority were homeowners’ claims, said Carly Kraft, a Farmers spokes- woman.
“So far, we’ve deployed more than 130 additional claims staff into the area to help expedite the claims process,” Kraft said. “We have had several relief sites open for customers to file their claims and speak with their agents.”
Mercury Insurance said it had decided not to release details on claim numbers, said Shane Smith, a media representative for Mercury.
“The insurance industry constantly prepares for disasters,” said Janet Ruiz, a spokeswoman for the Insurance Information Institute. “We have experts, we have disaster and catastrophe teams already on site.”
Ready or not, however, a mammoth bill awaits insurers.
“The damages are in the billions, just looking at the number of homes destroyed and the tragic loss of life,” said Gerald Singleton, an attorney based in the San Diego suburb of Solana Beach and an expert in wildfire-related litigation.
Insured claimant s shouldn’t think the process will necessarily go smoothly even if they quickly receive a check from the insurance company, warned Labar.
“They get that initial chunk of money, then three to six months, even more pass,” Labar said. “Then the biggest shock can come when they realize they have reached the policy limits and their policy won’t be enough to replace the house.”
Part of the problem is that people often have certain presumptions about their homeowners’ insurance policies.
“People have an incredible misconception that their policies were written to replace their homes,” Labar said. “Most policies don’t provide that. People are often greatly under-insured.”
Wayne Harvell, a Santa Rosa resident whose home was destroyed, said so far, he has been treated well by his insurance company, which has already cut a check for immediate expenses, and has paid for a hotel room and clothing. The insurer also has put Harvell and his wife in contact with a firm that arranges long-term rental housing.
“With the massive amount of people that are affected here, we think things will be moving slowly,” Harvell said. “A lot of these insurance companies are going to be overwhelmed.”
Another challenge is insurance companies might not finish paying off the claims until the homeowners pay their contractors, and then payments are based on what the insured customers have actually paid out to construction crews, Labar said.
“If insurance companies are not able to pay fully, then they will begin delaying the payments,” Ortega said. “They will become more careful and more meticulous in estimating the payments. At that point, every dime counts.”
The house Harvell and his wife hope to replace is one in which they had lived for 30 years.
“We are the only owners of the house that we lived in. We went and picked our lot off a map, and watched our house being built before we moved in,” Harvell said. “Now we are back to a vacant lot again. We have gone full circle.”