Wherever You Live, Your Home is (Probably) Under-Insured
A couple of days ago I chanced on this following very detailed and very lengthy article from the SF Chronicle:
https://www.sfchronicle.com/california/article/underinsured-home-what-to-do-20250824.php
This is behind a paywall, but if you haven’t been to the newspaper website recently you can probably read it. I am going to try to summarize some of the content.
Let me begin by putting a personal spin on this topic. I spent 30 years in the property and casualty insurance world. But, like you I have to insure my own home. I have my home insurance with USAA as I am a former officer in the military and qualified to buy from them.
Even though I am retired, I still know folks in the business and try to understand what is going on in the industry. Through this process, I began to be concerned about whether or not I had enough coverage on my WA home. Two years ago, I heard reports that it was costing significantly more to rebuild than what insurance companies were recommending. I went on-line to the USAA site and went through their coverage estimator with the details on my home including square footage, the size of decks and porches, floor coverings, age of building, type of roof material and age, kitchen and bath quality and number of fixtures, and more. At the end of the process, I compared their recommendation to what I had heard about the cost per square foot to rebuild. The company was around $80/SF too low. On a 2500SF home, this is $200,000 too low!
At the time, I didn’t worry about the how and why of this was happening. I simply fixed my problem by increasing my coverage so that I was closer to what it might cost to rebuild the home. However, when I saw this article, some alarm bells began ringing in my mind. I had previously posted here about the under-insurance that is commonly found after catastrophic fires, attributing this to supply and demand turmoil after a big fire event. Now, this article explains what is going on. When I was working Marshal and Swift provided the software companies used to calculate reconstruction costs. However over the last 20+ years they have been replaced with other software. This newer software is more complicated but also allows for agents to low-ball the factors to produce a lower replacement cost and more competitive premium so that they can sell more policies. If you had to actually go through the details with an agent the interview might take 4 hours to complete. No doubt, this would be a sales killer. Who among us wants to discuss insurance on the phone for four hours?
The companies appear to know all about this issue. Insurance companies are like wildebeests, they travel in herds, so most of them use the same software. They correctly maintain, that it is up to the insured to make sure that they have enough coverage. As a homeowner, it is up to you. Especially, if you live in an area exposed to wild fires or other catastrophe, no matter that you think you are already paying way too much for your house insurance, you are most likely significantly under-insured. In a high cost of living area it might cost $300-500/SF to replace your home…….do the math, talk to your agent and ask for a realistic estimate to rebuild. Be honest about your home details. Bite the bullet, and buy the increase. Choose a higher deductible. If you wait until after the fire it will be too late….
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