Don't Get Burned By Insurers

Once homeowners have escaped the danger of the Southern California wildfires, it won't be long before they need to begin replacing what they've lost. Insurance companies say they're already being contacted by people from the fire zone.

The Early Show's resident financial adviser, Ray Martin, offered advice Thursday on how owners of houses damaged by the wildfires, or any fire, can get the most from their insurance companies. He stressed that people everywhere whose homes are perfectly safe should take the wildfires as a wakeup call to carefully review their insurance policies.

Words of wisdom offered on The Early Show:

Fire, unlike floods and earthquakes, is covered very clearly by insurance. The question for most homeowners is going to be, do they have enough insurance to cover what they've lost? (FYI: If you're a renter in the path of the fires and you have renters' insurance, all of the information conveyed by Martin also applies to you).

If your home has been damaged or destroyed, what do you need to do first?

GET A COPY OF YOUR POLICY: When fleeing from a major natural disaster, some people may have the foresight to grab a copy of their homeowners policy on the way out the door. For everyone else, you need to request a copy of your policy during your very first call to your insurer. Find a way to get it immediately. Perhaps it can be e-mailed to you and you can print it out at a friend's house or at the library; maybe you can pick it up from the company's local office. The point here is that you need to become an expert on your own policy ASAP -- that's the only way you're going to get the money you need from insurers.

ASK ABOUT LOSS OF USE: During your first call, you'll also want to ask about temporary housing, aka "loss of use." Get the details on what exactly your insurance covers. Generally, policies are pretty good on this point; they will pay for something that's a "reasonable" equivalent to your damaged or destroyed home. If you lived in a four-bedroom house, you're not going to be stuck in a one-room motel for several months. Your policy will probably pay for you to rent a home. More specifically, policies typically pay about 30 percent dwelling coverage for loss of use. So, for instance, if your home is insured for $200,000, you may be entitled to as much as $60,000 toward temporary housing costs.

As soon your insurance carrier can verify your loss -- companies have already dispatched teams of adjustors to California to begin this process -- it will immediately send you cash for living expenses. Often, it will send you a debit card pre-loaded with a certain amount of money. Even if you receive such a card, it's essential to hold onto all your receipts; you may need these down the road.

DOCUMENT EVERYTHING: You need to keep careful notes of your conversations. Martin explains that, "From the start of this very first phone call and throughout the entire process, you should document all contact you have with your insurance company and its representatives. Write down the time and date of every call, what was said, by whom, and what the next steps are. Your insurance company may want to handle your claim with little or no documentation, but you must make sure to document everything."

If you run into problems later in the process, such as insurers not wanting to give you the agreed upon amount of money, you'll have the facts you need to fight back. That said, Martin says odds are the insurance company employees you'll be speaking with in the days immediately following a disaster will be "nice." You're not going to be hassled, and don't need to worry about being ripped off. These employees are professionals trained to be empathetic and deal with customers' grief. They understand you don't know the ins and outs of your insurance policy, and will truly work with you to answer questions and kick off your claims process. You can certainly expect to run into some headaches later as you attempt to collect money for rebuilding your home and replacing your belongings, but your initial experience should be fairly painless.

Anyone who hasn't been directly touched by the California wildfires should truly use this as an opportunity to take a close look at his or her homeowners policy. Unfortunately, many homes don't carry enough insurance. This means if your house was destroyed, insurance will not cover all the costs of replacing it. This is a BIG problem. Although roughly 96 percent of homeowners have insurance, two out of three homeowners are underinsured; these homeowners on average have only enough coverage to pay 78 percent of the costs to replace or rebuild their homes. Why? The main problem is that people buy insurance when they first move into a home, and then never change the coverage amount. It's smart to re-evaluate your policy each year to see if it's still adequate.

Things to consider:

  • Price of building materials, labor: As prices of wood, fuel, etc. increase, this directly affects your building costs. Factors like this have increased replacement costs by over 7 percent a year since 2001.
  • Home improvements: If you refinish a basement, buy some expensive audio equipment, or upgrade your home in any other way, you need to upgrade your coverage accordingly.

    As you re-evaluate your policy, it's smart to take photos, or even videos of your home. If the need ever arises, this documentation will help during the claims process.

    Martin also filed a column on the process:

    Homeowners Insurance -- File A Successful Claim Settlement

    For most people, making a claim and negotiating the settlement process is something they have never had to do, and the process can be intimidating. To make the matter more difficult, many people see insurance companies, with their vast financial and trade association resources, as a formidable adversary, and many people lack the experience or capability to negotiate a fair settlement of their claim.

    Before you begin the claims process, it is critical that you know how to go about it. Being well informed and prepared will improve your chances of receiving a fair settlement, and can be the difference between a frustrating and confusing process and a prompt and fair settlement.

    Read Your Insurance Policy First

    Most people filing insurance claims aren't sure of their rights provided to them as an insured under their policies. They are also worried about trusting their insurance company -- and they should be. The interests of the insurance company and the insured are not on the same side when it comes to settling a claim. The first thing to do is to obtain a complete copy of your insurance policy, including all declarations, endorsements, and riders. The Declarations Page will include each category of coverage (such as dwelling, contents, loss of use, etc.) and the specific dollar limits of each category. Your policy will also include a description of all risks and losses that are covered. Your insurance company is an expert on your policy; you need to be one as well.

    Document, Document, and Document

    When you file a claim, you will first report the loss to the claims department of your insurance company; it will create a claim number for your loss and assign the loss to an adjustor, who will report to a claims supervisor.

    From the start of this very first phone call and throughout the entire process, you should document all contact you have with your insurance company and its representatives. Write down the time and date of every call, what was said, by whom, and the next steps. Your carrier may want to handle your claim with little or no documentation, but you must make sure to document everything. For this reason, it's a very good idea to insist on obtaining e-mail addresses and to send summary e-mails of every phone call with your insurance company back to your adjustor and claim supervisor.

    Also document the names, titles, phone numbers and e-mail addresses of all the people in the organization's structure who are accountable for your claim. This will include, from the bottom up, the adjustor, claims supervisor, unit manager, regional claims manager, and home office claims department. This will be helpful to know so that, in the event you need to escalate a problem for further resolution, you will know whom to contact. Also, claims managers and unit managers would much rather resolve a problem at their level than have to explain to their higher-ups why your complaint had to be escalated for resolution.

    Review Adjustor's Report Carefully

    After the adjustor inspects your loss, he or she will prepare a written assessment of what needs to be repaired or replaced, and their estimate of the costs for each item. It's important to know that adjustors typically use a replacement cost computer program to prepare their reports, and the costs of materials and contractors will be based on regional or national averages. The adjustor will quickly provide the report to the claims supervisor, who will then move to quickly issue you a check based on the coverage in your policy and the adjustor's report. If you have a mortgage, the mortgage company or bank will also be named on the check. You will be required to endorse the check and send it to the mortgage company. The mortgage company will hold the funds in a loss draft account, to disburse to you in installments, as they're required to pay your contractors/builders.

    When you receive the first check from the insurance company, do not deposit it or send it to your mortgage company until you have carefully reviewed the adjustor's report and agreed with all items and costs. Look for things such as missing items, partial or incomplete measurements, and low-balled contractors' costs. In local markets where builders and skilled labor are in short supply, the regional costs used in the adjustor's report may be significantly less than what it will actually cost to replace what you had before the loss. If this is the case, do not agree to accept the first offer from the insurance company and to make it up with supplemental claims later. Instead, return the first check and request that the adjustor revise the report, and request a check from the insurance company for the larger amount.

    Complain Professionally and Politely

    At times, you may feel that your requests for covered losses are not being responded to fairly, or at all. That is when your written documentation will pay off. Make all complaints in writing. Be complete but concise, be professional and polite. Be specific in your written complaint about the problem, make a specific request for resolution, set a response timeframe, and make sure to copy the complaint to the person one level up. Make sure to ask the insurer if it requires any additional information from you and when the carrier needs it. Finally, include in your complaint that, if a reasonable resolution cannot be offered, you are prepared to file your complaint with the state's insurance regulatory agency. To find your state insurance regulator, log on the Web site of the National Association of Insurance Commissioners, at www.naic.org.

    Hiring a Professional: Public Adjustors and Attorneys

    If you have a large insurance claim or there is a large difference between what the adjustor says the insurance company will pay and what you believe should be paid under your policy, you may want to consider using a public adjustor.

    A public adjustor, or PA, is a person who is licensed to represent insureds' claims for the purposes of seeking full and timely settlements. In a claim dispute, since the burden of proof is on the insured, a PA will document the loss, gather supporting replacement costs information, and negotiate with the insurance company to maximize your settlement. You can find out more about PAs by logging on to the Web site of the National Association for Public Insurance Adjustors, at www.napia.com.

    If your insurer is digging in its heels and you're getting nowhere, you may have to resort to hiring an attorney. Don't seek the counsel of a family lawyer; rather, seek an attorney who specializes in the practice of law in the areas of "plaintiffs insurance coverage" or "bad faith litigation." The insurance company will use a very skilled insurance defense attorney to represent it, and your lawyer should be a worthy opponent. Check with your County Bar Association and ask for a referral for attorneys who specialize in this area of the law.

    The downside with hiring a PA or an attorney is that you will pay additional costs. PAs and plaintiffs insurance attorneys typically charge either a fee as a percentage of your settlement proceeds (10 to 33 percent) or hourly rates that can range from $75 to $350 per.

    As you should do before hiring any professional, ask for and check client references of any PA or attorney before you agree to retain their services.

    The following excerpt from the United Policy Holders Web site, at www.unitedpolicyholders.org, sums it up well: "If you can communicate effectively in writing and in person with your insurance company with confidence, polite aggression, and insistence on your rights, you may not need an attorney (or a PA). If you are feeling frustrated, angry or anxious or are unsure about your rights, a qualified attorney (or PA) can help."