Oct 13, 2016
Insurance and Wildfire: An Interview with Carole Walker, Part 1
Authors: Carole Walker
Carole Walker is the Executive Director of the Rocky Mountain Insurance Information Association (RMIIA), a non-profit trade association representing auto, home and business insurance companies in Colorado, New Mexico, Utah and Wyoming. RMIIA’s primary mission is helping consumers better understand insurance and is a key community wildfire partner. For nearly two decades, Walker has assisted with insurance recovery and rebuilding after devastating wildfires.
FAC Net: What do most homeowners forget to think about related to their insurance and wildfire?
CW: Most homeowners living in high risk wildfire areas now think about getting and keeping insurance, but all too often they don’t understand how their insurance works or at least annually update their policies to help make sure they have the coverage they need.
It’s essential for homeowners to do an annual insurance check-up with their insurance professional to understand what is and isn’t covered, consider their policy limits that include replacement coverage and endorsements that provide additional financial protection when a claim is made.
Where are people generally underinsured in their policies?
The amount of insurance you need is not based on the market value of your home or what you could sell it for, but on the cost to repair and rebuild your home in today’s dollars. That can change over time with construction costs, especially with the impact of price surge that often occurs after a destructive wildfire. Inform your insurance agent or company when you do home remodeling or additions that could increase replacement costs. Changes in local building codes can also affect repair and rebuilding costs, so understand how you are insured for code upgrades and consider purchasing endorsements for extra coverage, called “law and ordinance” coverage.
Basic ways to insure your home and contents:
- Replacement Cost: Insurance that pays the policyholder the cost of replacing the damaged property without deduction for depreciation, but limited to a maximum dollar amount.
- Extended Replacement Cost: An extended replacement cost policy, one that covers costs up to a certain percentage over the limit (usually 20%). This gives you protection against such things as a sudden increase in construction costs.
- Actual Cash Value. This covers the cost to replace your home minus depreciation costs for age and use. For example, if the life expectancy of your roof is 20 years and your roof is 15 years old, the cost to replace it in today’s marketplace is going to be much higher than its actual cash value.
Does doing mitigation on your property matter, or do insurance companies view all wildfire risk as the same regardless of mitigation?
Most insurers now require homeowners living in fire prone areas to do wildfire mitigation to get and keep affordable insurance. Catastrophic events have increased both in terms of numbers and severity of damage—leaving insurers responding to a homeowner insurance marketplace filled with volatility. Hurricane Matthew is the most recent example of the massive devastation that homeowners and insurers need to attempt to prepare for, insure and take steps to reduce the risk.
Wildfire is a risk and we can decrease the chances a home will burn if homeowners are willing to take ongoing steps to protect their property. That is why most insurers now consider wildfire a shared risk in which insurance is still widely available if homeowners do the required mitigation. This includes creating defensible space around homes, thinning trees, and in some cases hardening of the structure—replacing roofs, building with fire resistive materials, planting fire resistive landscaping, etc. Insurers invest in, and rely on, the Insurance Institute for Business and Home Safety (IBHS) research to help establish wildfire mitigation guidelines.
Can you talk a little bit about the benefits of renters insurance and why it’s important to have?
Renters insurance is an inexpensive investment you can’t afford not to make. Too many people either think their landlord’s insurance will cover their belongings or put it last on their list of things they need to buy. However, for about the cost of a movie each month your renters insurance covers your contents if they are damaged, destroyed or stolen up to the policy limits. You should also talk to your insurer about buying extra coverage or endorsements for big-ticket items, antiques or jewelry that may exceed the limits of your coverage.
Renters insurance will also cover out-of-pocket expenses called additional living expenses (ALE) that may help pay for you to live elsewhere when there is a mandatory evacuation or your rental is damaged or destroyed. Additionally, renters insurance includes protection for personal liability that will insure you if someone is injured on or even away from your property and you are held personally responsible; for example if your dog bites someone.
To be fully covered I should do an inventory of my stuff as well, right? Can you talk a little bit about the benefits of inventorying everything upfront (even though it seems daunting).
We often hear from wildfire survivors about the heartbreak they suffer from the task of inventorying their lost personal belongings after a fire. That’s why is so essential that before disaster strikes and you’re faced with a loss, to make a home inventory-lists, pictures or a videotape of the contents of your home. Would you be able to remember all the possessions you’ve accumulated over the years if they were destroyed by a fire? Having an up-to-date home inventory will help you get your insurance claim settled faster, verify losses for your income tax return and help you purchase the correct amount of insurance.
Most insurance companies offer home inventory apps to help simplify the process. The Insurance Information Institute has free downloadable home inventory software that allows you to go room-by-room and will walk you through the inventory process. You can scan in photos, receipts and appraisals to further document your stuff. It’s better to have an incomplete inventory than nothing at all. Start with recent purchases, photos and videos, then try to remember what you can about older possessions. If you don’t want to track this information online, here is a sample home inventory form.
Read part 2 of Carole’s interview here.
Editor’s Note: This post is intended to give basic information about insurance and wildfire. It is not meant to be comprehensive or replace the information given to you by your personal insurance company. Please talk to your insurance company to get the full information about your coverage.
This is part one of a two-part post on insurance and wildfire. This interview series was spurred by Carole’s recent presentation on a Firewise Virtual Workshop.