A year after the Los Angeles wildfires, many survivors face the same prob
lem: Their insurance policies aren’t paying out enough to cover the cost of rebuilding.
It’s a tragic predicament. And it will happen again when the next disaster hits.
Since the 1990s, American homes have been systematically underinsured in the event that they are completely des
troyed. Study after study shows that, counter to the public’s understanding, ma
ny home insurance policies are not required to cover total replacement of homes.
Related: The Return Period for an LA Wildfire-Scale Event May Be Shorter Than You Think
The trend, though decades old, has been somewhat hidden. But climate-
driven events that cause massive destruction, especially wildfires, are revealing just how pervasive and severe the problem has become.
“Climate change did not cause underinsurance, but it does expose it and amplify it,” said Kenneth Klein, a professor at the C
alifornia Western School of Law specializing in the topic.
Global warming is creating a hotter and drier world. Combined with more construction in areas with lots of flammable vegetation — the wildland-urban interface — it’s led to a rise in da
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maging fires in the US. Researchers at the University of Colorado Boulder in 2023 found that wildfires in Western states destroyed 243% more buildings in the decade between 201
0 and 2020 than in the previous decade. The fires in LA claimed in excess of 15,000 structures.
Related: California Bill Would Require Insurer Claims Handling Plans, and Double Penalties
United Policyholders, an advocacy group, was formed in part to help homeow
ners not being adequately covered for rebuilding costs after the Oakland firestorm of 1991. The group bega
n sending surveys to wildfire survivors in 2007, and since then, an average
of two-thirds of respondents said they had found themselves underinsured, by an average amount of $200,000 or more.
Studies have confirmed what the surveys indicated. For example, researchers
analyzed data from the Marshall Fire in Colorado, which consumed more than 1,0
00 homes in suburban Boulder County on Dec. 30, 2021, and found 74% of affected homeowners were underinsured.