By Bill ThornessInsuranceNewsNet
October 30, 2003 -- Outside the Mira Mesa High School in San Diego, the gritty, dark sky yellow with smoke, State Farm claims representative Robert Matsushima has his first meeting with insureds who have lost their homes to the wildfires raging in the hills outside the city.
For some, "it doesn't become real until they come here and talk with us, and we work with them and give them some money," says Matsushima. "Then they break down."
State Farm and other major insurers are on-site at disaster evacuation centers around the stricken region to comfort and aid their policyholders, handing out checks for living expenses and initiating claims files.
What may be the worst fire storms in California's history -- and one of the most costly such event for insurers -- don't affect everyone the same way, he says.
"We talked to some people today who said, that was our house on the news burning down," says Matsushima, a 10-year adjuster. "They took it actually pretty well. There's nothing you can do, so let's just move on with what you've got."
The fires began on Oct. 21 and dramatically escalated on Sunday, Oct. 25.
Residents have been fleeing their canyon homes outside the San Diego and Los Angeles metro areas as Santa Ana-wind-fueled fires blazed through tinder-dry vegetation. Many only have time to grab a fistful of personal mementos.
Through Oct. 29, at least 15 people have died in connection with the blazes, including one firefighter. Tens of thousands have been evacuated from endangered areas, set adrift with no idea whether their property will succumb. Those with no other options are camped in tents set up by the Red Cross in parking lots, airport hangers and schools, like the one in San Diego.
And insurance adjusters begin the tally and prepare for the wave of claims that are imminent.
To date, there have been 3,812 claims submitted, according to an industry survey by the Insurance Information Network of California, which has reports of more than 2,000 homes being damaged or destroyed.
The fires "will clearly cost hundreds of millions of dollars, and are likely to reach upwards of $1 billion in insured losses," said Candysse Miller, executive director of the IINC.
As of 11 a.m. today, 3,304 structures (residences and outbuildings) were reported as destroyed by the California Office of Emergency Services.
Thousands of additional homes were listed as at risk by emergency officials as firefighters followed the shifting winds to chase the flames, which to date have engulfed 666,000 acres. Many homes not totally destroyed have seen significant smoke damage.
Working from three mobile claims service centers near the San Diego fires, Farmers Insurance adjusters are starting to make appointments to inspect damaged homes, says Charles Dabelgott, the company's Southern California market manager.
Adjusters began looking at losses on Oct. 28, by which time they had recorded 728 claims, says Dabelgott, whose company insures 19 percent of California homes. For areas still off-limits due to fire danger, Farmers and other carriers are trying to contact their insureds by phone.
"We have claims personnel out at the evacuation centers," says Bob Devereux, spokesperson for State Farm, which writes about 23 percent of the homeowners' policies in California. "Agents and claims folks are able to write checks on the spot, for additional living expenses, to help people find a place to stay, get meals, clothing, that sort of thing."
He says the company, which last year restructured its California operations, will use one recently closed office in Rancho Cucomonga for catastrophe claims operations relating to the San Bernardino fires, and an office in San Marcos for San Diego area fire claims. Members of a national catastrophe team were to arrive by week's end.
As of this morning, State Farm has recorded 1,580 fire-related claims, Devereux says.
Allstate, with 14 percent of California homeowner policies, also has deployed adjusters to the evacuation centers and has mobilized its catastrophe team. Spokesperson Lisa Wannamaker says the company is not currently releasing statistics on the number of claims filed.
Although wildfires are nearly a yearly occurrence in coastal southern California, this year's conflagration has been exceptionally severe, numbering amongst the worst fire years. In 1991, fire in the Oakland Hills and Berkeley destroyed 2,900 homes and caused $1.7 billion in damage. Two years later, fires in Orange County and Los Angeles County caused $725 million in damage.
Industrywide loss estimates are not yet available, says Gary Kerney, assistant vice president of Property Claims Services, a unit of the Insurance Services Office that tracks catastrophe information for the industry.
Kerney said his organization is studying the fires to determine whether they qualify as catastrophes. PCS defines catastrophes as events causing at least
$25 million in insured property damage. Each fire, Kerney explains, is being considered a separate event by PCS.
Following the 1991 and 1993 fires, insurers and policyholders were at odds concerning provisions of fire coverage. Issues arose over some homes not being insured to value and the meaning of "replacement cost," and whether the policies were designed to pay for things such as destroyed foundations and upgrades necessitated when rebuilding due to changes in the building codes and ordinances.
This year's fires will very likely not see a reprisal of those problems, say insurance experts.
"I think that since Oakland, companies have probably focused on insurance-to-value," Kerney says.
In some cases, the insured has the responsibility to keep adequate coverage limits, says Loretta Worters, spokesperson for the Insurance Information Institute. "Whether or not the message was effective in getting out to consumers that they need to have the proper insurance, time will tell."
"We do total replacement cost, and the agreement in our policy says we will replace the house," says Jeffrey Spring, spokesperson for the Interinsurance Exchange of the Automobile Club of Southern California, the third largest writer of homeowner coverage in the affected area.
Like many insurers, the Auto Club has been diligently adjusting home values for their policyholders, to keep pace with rising costs. "We've been going though an extensive review the last year or two, and believe we're pretty close," Spring says.
"Our system reevaluates homes on an annual basis to make sure that cost evaluators are put in for inflation-guard," explains Farmers' Dabelgott. "We feel we're insuring people to what the value of their homes are."
He adds that most Farmers homeowners policies include a "code enforcement endorsement," so rebuilding to stricter codes would not be an issue.
For some carriers, such provisions are offered at an additional cost, so insureds must be aware of the issue to purchase the coverage. Also, while some insurers provide total replacement cost coverage, others limit the value of the replacement cost to a percentage above the property value stated on the policy.
As the fires raged, many carriers issued moratoriums on new policies, causing the phones to ring at the state's insurer of last resort, says Mike Harris, spokesman for that carrier, the California FAIR Plan. "Our new business submissions have gone up; calls are up 35 percent," Harris says.
"Our exposure will go up, but by how much -- who knows?"
Harris says he expects to see high estimates for rebuilding homes in the mountainous regions that have been hit by these fires. Labor and materials will be expensive, he predicts, using a 1993 example of plywood prices shooting up 300 percent after the fires.
One recent code change impacts roofing type, says Harris. "There's a state law that said if you were in a brush or wildfire area, you could not rebuild with a wood-shake roof," he says. "Earlier this year, they made that law statewide."
The widespread fire damage may put a strain on local resources, says State Farm claims representative Matsushima. "We're telling people, right now it's probably going to take two or three months to get a real number on your house, and probably two or three years to get your house taken care of."
Contact Bill Thorness at firstname.lastname@example.org.