In 2021, a Louisville couple purchased $419,000 in home insurance, based on an agent’s recommendation. Now, the plan’s payments are only paying half of what they need to rebuild the house they lost in the Marshall fire.
In a lawsuit filed this summer, the couple sued their agent, their insurer and the company that created the software their agent used to tell them how much they wanted.
They are not the only ones who find fault with the software.
Industry leaders, including Colorado Insurance Commissioner Michael Conway, say that the computer programs that insurance companies use to provide extra money to homeowners are a problem because they often ignore the number of families who need to lose their homes in natural disasters.
Conway said he became aware of the issue while investigating complaints after the Marshall fire, the Dec. 30 fire. which destroyed more than 1,000 homes in Boulder County. He said he hopes the legislature will find a way to force insurance companies to provide accurate figures when selling policies.
The problem, he said, is that insurance companies use one program to provide statistics on how much homeowners insurance customers need and a different program to sell what homeowners need to replace their homes when they burn down.
“We’ve had conversations with buyers who bought their homes six to 12 months before the fire and the money they were told they needed was very different from what they needed,” Conway said. “That’s a problem and it’s a problem we need to think about.”
Change can be difficult. Lawsuits have not gone well and legislation will be needed to force insurance companies to change the way they treat customers, said Amy Bach, executive director of United Policyholders, a nonprofit that advocates for consumers.
Meanwhile, insurance companies are pushing back against any new rules, saying that consumers are responsible for knowing how much coverage they need just like the agents they work with.
“It’s a shared responsibility,” said Carole Walker, executive director of the Rocky Mountain Insurance Information Association, which represents insurers in Colorado. “On both sides, we’re looking for a way to communicate to make sure we get the best price possible and that it’s adjusted.”
“Look at the software”
In July, Douglas and Amanda Mayfield filed a Boulder County homeowner’s insurance claim, claiming their Louisville home was covered by $431,000 in damages.
The Mayfields were out of town visiting relatives when the fire destroyed their property. They had left their golden retriever Lucky at home in the care of a petsitter. They lost their dog and everything they had, the couple told The Denver Post following the devastating fire.
The Mayfields, who declined to be interviewed on the matter, said in their lawsuit that they renewed their homeowner’s policy in 2021 with a $419,000 occupancy fee, according to the insurer’s recommendations. When their house burned down, the insurance company said it would cost $555,055 to replace it. And the Mayfields say the actual cost estimate to rebuild their current home is $850,000.
The focus of the lawsuit revolves around the Mayfields’ allegations that their agent failed to inform them of additional services they could purchase and failed to obtain an additional policy that would have provided an additional 50% of the premiums. But they also criticize the company that provided the software for the original estimate.
“Our client said outright, ‘I think it’s going to take a lot of money to keep my house,’ but the agent was only able to say the lowest based on what the program said,” said Shirin Chahal, an attorney representing the family. “Helpers are visible with the program.”
An insurance company, Progressive, used a product called the Marshall Swift & Boeckh Cost Estimator, a software program sold by CoreLogic. CoreLogic knows that customers and insurance companies rely on its products to help them make informed decisions when buying property insurance, the lawsuit said.
But it failed the Mayfields. CoreLogic must have known that its software did not cost Colorado the switch, based on data over the past 10 years, the lawsuit said.
“Had the defendants known the true cost of the property, the plaintiffs would have been able to obtain a policy with adequate limits to rebuild their home in the event of a total loss in the wildfire,” the lawsuit said.
Efforts to reach CoreLogic and Prudential for comment were unsuccessful.
“We can simplify the process”
The software used by insurance companies is provided by third parties. Almost every company uses the same products.
Verisk is one of the largest in the country, offering its 360Value and Xactimate software to insurance companies in the United States. Its 360Value app offers money to buy property insurance and Xactimate also provides cost estimates in lieu of claims, said Trish Hopkinson, executive director of 360Value.
Verisk’s software asks agents to enter information about nine areas that have a significant impact on the value of a home – the overall shape, year of construction, number of stories, type of foundation, whether there is a finished basement, what exterior walls are finished, the size of garages or yards. fireplaces, whether or not there are fireplaces and the best class of home such as economy, custom built, first class or builder grade.
The computer creates a three-dimensional model of the building and spits out an estimate for the rebuild without the homeowner or assistant talking to the contractor.
“That’s the beauty of it,” Hopkinson said, “We can simplify the process.”
The program is updated monthly to reflect available funds and materials used to build homes, Hopkinson said.
“If we were correct in the design and compared it to the total losses we found that we were on average within 10% of the total return,” he said.
There is no clear answer as to why companies may choose to use different software for writing and calculating claims.
“Negotiations of appropriate limits are often done at the agent level, and agents can use a different platform than the insurance group does. Even within insurance, the underwriting and claims teams can make their own decisions about what to buy and from which suppliers,” said Stephen. Clarke, Verisk’s corporate vice president. “Contractors can also use a very different approach.”
But Clarke said if a company uses all of Verisk’s products, then there is little difference because they rely on the same data for their calculations and calculations.
When asked why Firefighters in Marshall are seeing such a difference Among the things he mentioned about buying insurance and the exchange rate he lost, Mr. Hopkinson said it was because of the difficulties the country is facing as it comes out of the pandemic and faces high inflation.
And natural disasters that destroy hundreds of homes at a time have caused “prices to rise like never before,” he said.
Verisk officials have been talking to Congress in Conway and Colorado about the problem and possible solutions, Clarke said.
He said: “We appreciate the problem.” “We don’t like to see people who are not cured.”
For years, United Policyholders have been on the ground after the Colorado wildfires to advise people whose homes have been damaged. And at any given time, about two-thirds of the people they work with report being uninsured, Bach said.
“Underinsured coverage has hampered wildfire survivors and prevented wildfires from re-emerging for a long time,” Bach said. “A big part of the problem is the software that insurers are using when issuing policies.”
Homeowners rely on their agents and the tools they use to give them accurate readings for remodeling their homes.
“If I walk into an insurance company’s office and say, ‘I want you to insure my house,’ they will ask you, ‘How much do you want?’ And you would say, ‘I don’t know. What do you think I need? You are a genius.’ If they say they can’t give it to you, you can leave,” Bach said.
Bach recommends that the Colorado General Assembly pass a law that requires insurance companies to provide more accurate rates and allow their customers to choose what to buy. But the actual cost of the replacement should be provided upfront, he said.
“The whole system is not well established,” Bach said. “At the end of the day, one thing that would fix it was if the law said, ‘You, the insurance company, have to make a decision on the right limits.’
Cases related to the outbreak have spread to other states, most notably in California. But they are either pushed by the courts or settled behind closed doors. That’s keeping consumers in the dark about what insurance companies are calculating, Bach said, and lawsuits, so far, haven’t worked well to force change.
“That’s why there are so many reasons for the anger and the efforts that are being made now to change the law,” he said.
But Walker, who represents insurance companies in Colorado, warns that forcing people to buy expensive insurance can cause problems, especially in an economy where this year’s inflation is higher than previous rates.
“The simple answer to underinsurance is for everyone to have more insurance,” he said. “We don’t want people to look at their insurance bills and start looking at prices to decide between shopping and putting food on the table and buying insurance.”
And there is a trade-off between imposing requirements on industry and making companies continue to do business in the state to be able to afford it. He pointed to Florida, where insurance companies are pulling out of the state because of a surge in natural disasters and lawsuits. Some are warning that the public property insurance market is on the verge of collapse, Walker said.
The companies do not want a mandate imposed by the government but are willing to sit at the table and discuss regulatory measures, he said.
Conway wants insurance companies to do better.
“The onus is on the insurance companies to do that,” he said. “To say that homeowners have a responsibility to understand how much they need is wrong. The most important thing in my opinion is to make sure that insurance companies are providing good, accurate information about what a homeowner needs. What a homeowner can do with that information is up to them.”
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