Home / Archive / Risk Assured
Saturday, February 04, 2012
Feature: November 2007
Risk Assured
When preparing for disaster is the only certainty
Story by Russell Nichols
The sun rises behind the burnt pine trees with auburn needles, casting scattered light down on patches of parched land and heaps of dirt and ash that used to be houses. Amid the scarred and charred remains left behind by the Angora fire stands Drake Niven’s home, a white 3,200-square-foot house in South Lake Tahoe with green trim.
Niven was one of the lucky ones. Not only did the house survive, but he was able to move back in a few months after the blaze this past June. Most of his neighbors, on the other hand, are still in a battle with their insurance companies over settlements.
Niven, 57, built the two-story house on Mt. Diablo Road 20 years ago when he moved to the area. The home survived the fire mainly because he built it with cement rather than wood and added a big green lawn, which prevented the fire from reaching the house. Although it didn’t burn down, the house still suffered: cracked windows, melted hinges, roasted decking, and smoke seepage though the ventilation ducts in the attic and basement. Adjusters eventually estimated the house lost about $320,000 in damages to structure and contents. Niven, a carpenter and public contractor, knew the rules of engagement, so when his insurance company wanted to give him half that amount, he said no deal.
“Insurance companies will try to wear you down,” says Niven, who is still negotiating his settlement. “They’ve got time on their hands, so they don’t care, which is kind of a shame. But you’ve got to stick to your guns, or they won’t do what you want. If you have a total loss, that’s a no-brainer. But with the people who survived, [insurance companies] try to nitpick you to death. If I didn’t have the experience I have, I would’ve been screwed.”
In June, the Angora fire swelled from an illegal campfire and crawled across 3,100 acres, destroying nearly 260 properties and causing more than $150 million in damages. Within days, the fire was contained and residents slowly began to return to the disaster area to see the extent of the damage. They documented the destruction and called insurance companies, trying to file claims as quickly as possible. But for some, the worst of it was yet to come.
Insurance policies are like fingerprints — varying from property to property —
with no two alike.
Some homeowners were stuck with limited policy coverage. Some realized the settlement wouldn’t be enough to rebuild. Like Niven, others have gone back and forth with insurance companies for months, struggling to agree on a settlement that would pay for the damages caused by the blaze. By late summer there were nearly 600 insurance claims resulting from the fire. By October, the California Department of Insurance had received more than 20 complaints. And then there are the scam artists, who swarm like bloodthirsty mosquitoes to disaster sites. These unlicensed contractors come out of the woodwork like clockwork to prey on vulnerable residents pitching hollow promises and higher prices.
The El Dorado County District Attorney, Contractors State License Board, Department of Insurance and county Sheriff’s Department joined forces to catch the swindlers who pretend to be public adjusters or contractors. The officials swept the disaster area routinely, making sure all workers had the right credentials. In California, contracting without a license in a declared disaster area is a felony. At least 14 arrests have resulted from undercover sting operations.
“We have an obligation to protect the residents from these bad people,” says Richard Jones, deputy district attorney. “They will write scopes of work, which are exaggerated. They take 20 percent of the total settlement as a fee even if they don’t actually perform the contracting work. Normal fees run between 6 and 10 percent of the settlement. These people will take money for a down payment and then disappear. It’s devastating to the people.”
But beyond the con artists, many residents have also been stricken by another widespread plague: underinsurance. Based on contents in the home, the square footage and financial need, insurance policies are like fingerprints — varying from property to property — with no two alike. But even in the wake of Hurricane Katrina, underinsurance remains a prevalent issue across the country that comes to light in the aftermath of disasters. In the U.S. last year, 61 percent of homes were underinsured by an average of 25 percent of what it would cost to rebuild, according to estimates by Marshall & Swift/Boeckh, a provider of property valuation services to the insurance industry.
“In many cases, the homeowners were underinsured,” says Laurel Brent-Bumb, CEO of the El Dorado County Chamber of Commerce. “They’re having to figure out how they’re going to be able to match apples for apples and what kind of return they’re going to get from their insurance agencies. Certainly, the insurance consequences are going to go on for a long time.”
Having adequate coverage is critical, especially in California’s Central Valley, where an aging levee system protects an estimated $47 billion in land and structures from delta and river waters. In 1986, many of those levees failed, causing nearly $200 million in damage, followed by more than $500 million in damages during the floods of 1997, according to the California Department of Water Resources.
Unlike fire insurance, flood coverage is not a part of a homeowner’s basic policy, but is provided by the federally funded National Flood Insurance Program. In high-risk areas purchasing flood insurance is mandated by mortgages. But in low-risk areas, it’s the homeowner’s choice.
Separate insurance policies cover catastrophes such as floods and earthquakes because some homeowners have more risk than others. If every policy covered the risks of earthquakes or floods, premiums would be more expensive, which wouldn’t make sense to a property owner who lives in an area with minimal risk.
“Though everything can be insured, there’s always a price for it.”
— Samuel Sorich, president, Association of California Insurance Companies
“Though everything can be insured, there’s always a price for it,” says Samuel Sorich, president of the Association of California Insurance Companies, which represents more than 300 property and casualty insurance companies in the state. “It would make the insurance product unattractive and unavailable to ordinary consumers. You buy your homeowners policy, and that’s always a wise investment that will provide basic coverage for fire, wind, theft and acts of vandalism. You make another choice whether or not you want to pay for risks that are out of the ordinary, like flood and earthquake.”
In 2004, state legislators approved modified insurance policy disclosure requirements, so homeowners would better understand policy coverage. The bill also required insurers to give consumers a notice of information every other year that warns them about the risks of going underinsured. When it comes to policies, many forget to update them every year. When disaster strikes, residents are shocked to discover their plan is outdated.
“It’s something that’s out of sight, out of mind,” says Tully Lehman, an insurance industry spokesman with the Insurance Information Network of California. “But residents should call their agent or insurer and make sure everything is right year to year.”
After any disaster — fire, flood or storm — getting the insurance claims finalized and receiving a settlement can be a long, tiring procedure, in part because it involves so many different groups: the insurance agency, property managers, claims adjusters and a qualified general contractor to oversee the project. Even in South Lake Tahoe — more than four months after the fire — many homeowners have remained living in rentals miles from the disaster area, while claims go through the slow grind of the insurance process. Niven was living in a rental until he was able to move back into his home Sept. 27. At that time, he only knew of two neighbors who had also moved back.
“I’ve had people working on it every single day,” says Niven, who began to restore his decking and strip his siding without receiving “one red cent” of the settlement money. “Once you establish the dollar figure, then they’ll sit there and pick that apart. The adjuster came to tour the house and downplayed everything. They took one look at it and said there’s too much fluff in there. If I hadn’t dug in my heels, I would have gotten less than what’s supposed to be coming to me.”
To compensate for delays in claims and underinsurance issues, Gov. Arnold Schwarzenegger sent a letter to the U.S. Small Business Administration. He requested that El Dorado County be declared a disaster area, so the Small Business Administration Disaster Loan Program would be available to residents and businesses affected by the Angora fire. After the request was granted, it qualified the victims of the Angora fire for low-income loans of up to $200,000 for homeowners to repair or replace their damaged or destroyed primary residence. Also, homeowners and renters are eligible for up to $40,000 to repair or replace damaged or destroyed personal property.
Businesses big and small and private nonprofit organizations may borrow up to $1.5 million to repair or replace damaged or destroyed property, machinery and equipment, inventory and other business assets necessary to meet overhead. The interest rate for homeowners and renters is less than 3 percent and 4 percent for businesses with terms up to 30 years, depending on the applicant’s ability to make payments.
“When you’re living in the middle of a charcoal pit,
you don’t really notice the smell.”
— Vernon Parker, homeowner, South Lake Tahoe
The SBA loan program has aided other disasters in the state. In 1991, the administration loaned more than $120 million to victims of the Oakland Hills fires. And in Southern California, after the fires in 2003, about $180 million in disaster recovery loans were taken out. So far, for victims of the Angora fire, nearly $3.7 million in loans have been approved.
“Generally, what we’ve found in the past is that although folks have fire insurance, there are deductibles, things not covered or things excluded,” says SBA spokesman Mark Randle. “There’s a shortfall, and we can make up the difference.”
Randle recommends that residents apply for the low-interest loans as soon as possible. It is better, he says, to get the forms in and approved first. Then, after the settlement comes in from the insurance companies, residents can decide how much of the loan is needed, if any.
In late August, state Insurance Commissioner Steve Poizner toured the area and met with homeowners, local officials and insurance agency representatives at Lake Tahoe Community College’s Duke Theatre. He held the town hall meeting to assess the needs of some of the victims and to remind them that state and local leaders were available to aid in the recovery effort.
And despite some of the horror stories from homeowners dealing with insurance companies, other groups have filled in the gaps: the community, excavation crews and local contractors. Vernon Parker, for instance, has lived in the area for 12 years and his one-story, wooden house survived the fire. He had never filed a homeowner’s claim before, but he learned all about the process through community meetings and handouts from state officials. When the adjuster inspected the house, he pointed out problems that Parker never knew to look for.
“They brought up things I wasn’t expecting,” says Parker, 56. “He started pointing out cracks in the drywall, cracked windows and broken seals and smoke damage. When you’re living in the middle of a charcoal pit, you don’t really notice the smell.”
Parker’s wife, Mary, adds, “There are some people that are really going through a lot of hassles. For every one person with a really bad story, there are probably five that have experienced good stories.”
It was the landscaping that saved their 2,000-square-foot home. In the backyard is a dry riverbed with a small, wooden bridge surrounded by a patch of strawberry plants, away from the burnt pine trees in the distance. And watching over the garden is a gift that Mary set down two days before the fire, a resin statue of St. Francis, the patron saint of animals, birds and the environment.
Disaster preparedness for your business
You never want your profits caught off-guard by a disaster. According to a 2006 survey by the Ad Council, less than half of businesses with fewer than 1,000 employees have a disaster plan in place. Many of these businesses cited time, labor and money as barriers to developing continuity plans. With the Capital Region vulnerable to flooding in the valley and fires in the high country, it’s certainly time to start an action plan. Comstock’s asks Leo Grover, president of Pinnacle Emergency Management, what businesses should consider before disaster strikes.
Conduct a risk analysis. Emergency disaster planning should include a comprehensive risk analysis of your building premises and business operations. A professional risk analysis will provide suggestions and plans for preparedness.
Identify the operational needs of your business. What will it take to keep your business operational — and flowing with minimal interruption — in the event of a disaster? Backup copies of data and additional off-site servers are a must. At least one off-site server for all electronic data and an off-site storage facility with climate control for paper documents can ensure security of valuable information.
Have a practiced plan in place. Develop preparedness drills and hold quarterly meetings for all employees. This will ensure your staff understands the backup operation plans and where to meet in the event of a disaster.
Secure a means of communication. Develop a plan to disseminate information accurately and promptly. Creating a website for employees and clients can provide a reliable means to open communication. Employees will need to be in touch with one another and management. Your clients can view announcements as to the status of your business, including adjusted hours of operation and your temporary location.
Plan for content damage to the business. Disastrous events often affect assets that are essential to the business. Cleaning, salvaging and evaluating the damage to your working capital is essential whether you run a manufacturing plant or a professional office.
— Ashley M. Wilborn
