Now that the Southern California fires have nearly been extinguished and the rebuilding process has begun, many homeowners in the area are facing the daunting task of dealing with their fire insurance companies over damages, estimates and claims. Unfortunately, many homeowners are discovering that they may be underinsured.

Rebuilding costs

Steve Poizner, California’s Insurance Commissioner, recently stated that as many as 25% of the homes destroyed in the Southern California fires may have been underinsured. The Insurance Information Network of California reports that the average cost to rebuild a home in California ranges from $100 to $300 per square foot. However, industry experts say that the cost may be as high as $500 per square foot for many of the larger, custom built homes that were destroyed in the fire. For many homeowners, their insurance simply won’t cover those costs.

Whose fault is it when homeowners are underinsured?

Is it the insurance companies’ duty to tell a policyholder if they’re underinsured or is that something that you need to do? We asked Jim Haines, an insurance industry claims consultant with over 40 years experience to comment:

It’s the agent’s duty and it’s the insurer’s duty, but policyholders should stay on top of it. You often see this type of situation with policyholders in their 70’s and 80’s. They’ve been with the same carrier for 30 years and may be way underinsured.

It’s also important to realize that the personal property contained within the structure is based on the structure itself, so it’s 50 or 70 percent of the structure. So if the structure is way under insured, generally speaking, the personal property is going to be under insured also.

What to do when contractors are scarce

Being underinsured is only one of the problems that many homeowners in Southern California may be facing – a lack of qualified contractors may be another. Thousands of homes have been destroyed in the recent fires and there simply might not be enough contractors to go around.

Haines provided this advice, “Unfortunately, homeowners just have to keep looking for contractors. However, they also have to be very careful because there are some people who come up there from out of state that had their licenses revoked. Homeowners have got to make sure that they’re dealing with a licensed contractor who’s bonded. They may even have to go out of pocket to get somebody up there to give them an estimate.”