Wildfire underinsurance: Board hears experts who point to estimator errors, call for stronger standards

The Board of Equalization held an informational hearing on May 28 focused on wildfire-related underinsurance, hearing testimony from consumer advocates, academics, builders and insurance professionals who said many wildfire victims lack sufficient homeowners coverage to rebuild.

Vice Chair Sally Lieber opened the hearing, saying she had “called for the special hearing in April after learning how many of our wildfire survivors have been systematically underinsured for the replacement value of their incinerated homes.” The panel of witnesses — including Amy Bach of United Policyholders, law professor Kenneth Klein, insurance broker David Schafer, and builder Matt Everson — described a recurring pattern: point-of-sale replacement-cost estimates and commonly used software defaults are producing figures that are too low, leaving many homeowners tens or hundreds of thousands short after a total loss.

Why it matters: Survivors who cannot fully rebuild reduce local tax rolls and can face long-term financial harm. Witnesses told the board that underinsurance after wildfires is not a rare glitch but a systemic problem that affects recovery, local budgets and community resilience.

Key findings presented - Prevalence and depth: United Policyholders said its surveys and long-term case work show a persistent proportion of wildfire-impacted homeowners are underinsured; staff and researchers cited rates “over 50%” in multiple events. Professor Kenneth Klein presented DOl-provided claims data covering recent wildfire years and summarized his analysis: roughly two-thirds of insured homeowners who suffered total losses were short of the funds required to rebuild, by an average depth in the mid‑30s percent range.

- Root cause — estimator defaults and data: Professor Klein and other presenters pointed to point-of-sale estimator outputs and the way companies and producers use them. Klein said the industry practice of using simplified, software-based replacement-cost calculators produces estimates that are low “about 95% of the time” in his sample and on average low by large margins; he described the commonly used adjuster starting points as negotiation positions that are not appropriate as a consumer-facing “adequacy” number.

- Demand surge and other amplifiers: Witnesses agreed that demand surge after a disaster (higher labor and materials prices when many rebuild at the same time) matters, but they said it amplifies rather than explains the core problem. Even before demand surge, many point-of-sale replacement figures were low.

Recommendations offered to the board - Require or require insurers to offer higher extended replacement-cost (ERC) options: Several experts recommended requiring insurers to make a 50% ERC endorsement available at point of sale (or to require an offer), noting that endorsements in that range materially reduce the frequency and depth of shortfalls.

- Improve the point-of-sale estimate standard and accountability: Presenters urged a uniform, higher standard for replacement-cost estimation rather than the current array of opaque software defaults. Suggestions included a public reconstruction-cost index by county or ZIP code maintained by the state, independent third-party inspection at point of sale, or regulation that would realign responsibility for inaccurate estimates.

- Expand building-code / ordinance coverage and adjust policy defaults: Witnesses noted that required minimums (for example, the 10% law-and-ordinance coverage currently mandated in California) often fall short of actual code upgrade costs. They recommended removing caps and ensuring estimates incorporate likely code and permit upgrade costs.

- Improve public education and disclosure: Consumer advocates said clearer, standardized disclosures and targeted outreach would help homeowners understand what their policy will and will not cover and how ERC endorsements and law-and-ordinance coverage work.

Representative remarks and data - Amy Bach, executive director, United Policyholders: Presented organization survey results and historical casework, saying her group “have found a very steady figure of over 50% of wildfire impacted homeowners have found themselves under insured.” She urged policy and point-of-sale remedies and stronger consumer disclosure.

- Kenneth Klein, Professor of Law, California Western School of Law: Klein described his analysis of insurer claims data for recent wildfire years and said that, across four years of analyzed claims, roughly two-thirds of total-loss claimants with replacement-cost policies (and many with ERC endorsements) still lacked sufficient coverage; he told the board that algorithmic estimator outputs are a primary driver.

- David Schafer, insurance industry practitioner: Schafer advocated for a uniform standard of dwelling-replacement cost estimates and proposed a state-maintained public index of reconstruction costs by county or ZIP code. He also recommended certification requirements for builders doing post-disaster reconstruction and urged clear shared responsibility if industry-provided estimates are used.

- Matt Everson, cofounder, BW Builders: Described the practical work of preparing detailed “scope-of-loss” or reconstruction-cost reports and said common software defaults (Xactimate or similar) are widely used but frequently produce estimates materially below actual rebuild costs; Everson described an operational pathway by which independent scope reports could be made available at modest cost to homeowners.

Board member concerns Board members repeatedly returned to two policy tensions: (1) how to raise replacement limits and require better point-of-sale estimates without sharply raising premiums or driving insurers from the California market, and (2) how to address affordability for low-income homeowners who may not be able to buy higher limits even if they are available. Speakers urged a mix of regulatory disclosure, improved estimation methodology, and public programs (grants, vouchers or tax incentives) to address affordability and mitigation.

Public comments and next steps A small number of industry and broker representatives provided brief public remarks emphasizing mitigation and the need to preserve insurer availability; board staff requested written comments be submitted to the BOE website for the record.

Ending Members thanked the witnesses and said the board will continue to study options. Witnesses and board members agreed the issue ties into broader emergency resilience, permitting, building-code enforcement and state support for rebuilding, and they recommended follow-up briefings to inform both regulatory and legislative options.