Natural Disasters Covered by Increased Insurance
All that worrying is well-founded, too. Although we (fortunately) have not seen any major conflagrations, fires have sprouted throughout Bay Area and made national news when they erupted in Southern California. Lest we get too complacent, we have only to watch the news to realize that yes, those fires and earthquakes and tsunamis and flooding from hurricanes could have happened here – and they might the next time.
That means that, while homeowners may question the need for some repairs and maintenance, few, if any, question the need for homeowners insurance.
But after a large natural disaster, homeowners often find that they aren’t fully insured. Even if they scrutinize their policy regularly, a funny thing happens after a large disaster. Because of the need for many contractors to rebuild and repair many homes after a large-scale disaster, too few qualified contractors are generally being asked to work on too many homes.
The result is that the laws of supply and demand kick in, making the cost of rebuilding after such a disaster considerably more expensive than rebuilding when the tragedy is more personal in scope.
Instead of building costs that are closely matched with a homeowners expectations and going market rates, rebuilding costs may skyrocket, jumping from 135 per cent to 175 per cent of normal.
It’s a problem that confounds insurers. After all, who wants to insure a home, only to have the homeowners realize they can’t afford to rebuild because of a sudden increase in contracting prices?
“We’ve seen this phenomenon, not only here, but across the country,” says Mark Simmonds, Director of State Operations for Liberty Mutual Group.
That is why Liberty Mutual rolled out a new “catastrophe trigger” on its homeowners insurance policies in California on July 27. “California is going to be the lead on this,” Simmonds explains, because of the state’s vast susceptibility to a wide variety of such wide-scale disasters. “This is the first state we focused on because of the obvious need,” he adds.
While Liberty Mutual would like to make the policy available to all states eventually, California is currently the only state where such an option is available.
The trigger applies to all policies with an expanded replacement cost endorsement. With that endorsement on the policy, California homeowners will receive as much as 175 per cent of their existing coverage.
Much of the trigger is based on the declaration of a disaster by FEMA (the Federal Emergency Management Agency).
For Simmonds, based in Pleasanton, California, it is a move he is only too happy to see. He says the decision makes good sense, both from an economic and a customer service standpoint. “It’s not a lot of homes this happens to, but it’s a lot of pain for the individual customers,” he explains. “We don’t want our customers to go through that at all. After looking at it, we basically have taken this cost in-house.”
By offering such an option, which helps a customer when they need it most, Simmonds says, “we are doing something that is right in line with the company’s goals for customer service.”
In the press release announcing the option, Liberty Mutual senior vice president Tom Jones puts it succinctly: “Our customers can’t be left underinsured because supply-and-demand economics cause the marketplace to temporarily inflate.”
As a result of this new program, the company may also be setting a new standard in the insurance industry. “We’re trying to stay ahead of the marketplace. We don’t know of any other player in the market that offers this,” Simmonds notes.
In other words, Liberty Mutual is hoping that, by taking the lead in natural catastrophe coverage, it won’t leave any insured homeowners behind.
