Latest news with #360Value
San Francisco Chronicle
16-06-2025
- Business
- San Francisco Chronicle
State Farm accused of ‘illegal scheme' that left California wildfire survivors underinsured
State Farm General, the largest insurer in California, stands accused of orchestrating a 'multi-faceted illegal scheme' to underinsure California homeowners in an effort to grow its market share, according to a lawsuit brought by Los Angeles wildfire survivors. In a complaint filed Monday with the Los Angeles Superior Court, attorneys alleged State Farm's California subsidiary and one of its agents 'deliberately' misused reconstruction cost estimation programs to undervalue how much its policyholders' homes would cost to rebuild after a disaster. That allowed them to offer cheaper policies while deceptively marketing those policies as providing '100% replacement cost' coverage. The tactics formed part of a 'race to the bottom' pricing strategy, through which State Farm captured more than 20% of the California insurance market, according to the complaint. 'Lower coverage limits correspond to more attractive premium rates, but leave homeowners unwittingly exposed to serious underinsurance when faced with a total loss following a natural disaster,' attorneys for the wildfire survivors wrote. 'This has severely undermined Plaintiffs' efforts to rebuild their lives in the aftermath of this tragic event.' This lawsuit and others follow a Chronicle investigation published in April that found that companies representing at least 40% of California's home insurance market all rely on one software program, called 360Value, to recommend policy limits to their customers. Insurers have failed to disclose 360Value's specific flaws to policyholders. Reporters found that the tool relies on faulty data and methods to determine its reconstruction cost estimates, often incorrectly guessing a home's features or drawing from outdated records. Agents for major insurers, including State Farm, rarely take the time to examine and correct the pre-populated data. Additionally, the information 360Value uses to price building materials and labor does not adequately account for California's higher costs. Taken together, these shortcomings have driven widespread underinsurance among California policyholders, the Chronicle investigation found, leaving them with coverage limits that can be hundreds of thousands of dollars too low. In the State Farm lawsuit, attorneys allege that the company deliberately misused the software to save time and operating costs. Over the past decade, the insurer required agents to input and validate fewer home characteristics by hand, instead relying increasingly on the 'assumed data' and skewing reconstruction estimates downward. What's more, State Farm may have attempted to use the incorrect data its agents prefilled into the tool against its own policyholders, soon after their homes burned down. According to the complaint, when some policyholders questioned the adequacy of their policies following the fires, State Farm 'demanded' their clients answer detailed questionnaires about their homes. Attorneys alleged these questionnaires were designed to help insurers claim that homeowners had provided incorrect information about their homes at the point of sale, giving State Farm an excuse to deny their claims and 'escape liability.' Most of the policyholders named in the lawsuit are underinsured by $1 million or more, according to the complaint. In one case, a couple purchased their home in April 2021 and signed up for a new State Farm policy. Their agent, using cost estimation software, set their coverage limit at $1,005,400. When the couple inquired about the adequacy of that limit, their agent responded in writing that the figure 'does cover the rebill (sic.) of your home.' However, after the couples' home burned down in the Eaton Fire in January, they learned it would cost well over $3 million to rebuild their home — meaning they are likely underinsured by at least $2 million. The State Farm underinsurance lawsuit follows others filed by Los Angeles wildfire survivors against USAA as well as the Interinsurance Exchange of the Automobile Club and CSAA, the two AAA-affiliated home insurers for California. The Chronicle's reporting also spurred a May hearing by the California State Board of Equalization, the state's agency tasked with overseeing property taxes and recommending legislation. The California Department of Insurance previously investigated State Farm for its replacement cost estimation methods following the California wildfires of 2015 and 2017. In a 2022 report summarizing that investigation, the state regulator identified 31 destroyed homes whose policies were set using 360Value replacement cost estimates, finding that half were underinsured by 25% or more. An additional five were underinsured by 40% or more. The department also found instances where State Farm's agents deliberately manipulated the 360Value program to lower the price of policies. In one case, an agent reran 360Value 26 different times, dropping the home's quality grade to 'economy' to generate a lower rebuild cost and thus cheaper coverage. The policyholder ended up being underinsured by $86,000. Representatives for State Farm did not immediately respond to a request for comment. In previous statements to reporters and to the Department of Insurance, however, it has attributed underinsurance to policyholders' failure to adequately assess how much their homes are worth. 'It is the customer's responsibility to select the appropriate limits,' the company wrote to regulators in 2022. In the lawsuit, however, attorneys argue that the average State Farm policyholder could not possibly know more about the cost of rebuilding homes in California than the insurance giant, which collects and analyzes reams of data on construction pricing each year. 'The determination of coverage amount occurs in the context of extreme information asymmetry,' wildfire survivors' attorneys wrote. 'While State Farm writes over a million California homeowners insurance policies each year by generating reconstruction cost estimates, the consumer typically only owns a single home and has no experience or knowledge of how to generate or evaluate the accuracy of a reconstruction cost estimate.'
San Francisco Chronicle
06-06-2025
- Business
- San Francisco Chronicle
Three major California insurers accused of systematically underinsuring L.A. fire survivors in new lawsuits
A pair of new lawsuits accuse three of California's largest insurance companies of 'systematically' underinsuring homeowners via flawed cost estimation software, leaving survivors of the Los Angeles wildfires unable to rebuild. The suits, which followed a Chronicle investigation into the issue, were filed Thursday in Los Angeles Superior Court against USAA as well as the Interinsurance Exchange of the Automobile Club and CSAA, the two AAA-affiliated home insurers for California. They allege the three companies knowingly insured homeowners for far less than the rebuild value of their homes through their use of computer programs they'd known for decades were faulty, making it difficult if not impossible for those homeowners to rebuild. 'The carriers are not telling insureds that the number they're giving them is not even close to the ballpark,' attorney, Gregory Bentley, told the Chronicle Thursday. His firm, Bentley & More, filed the suit and represents the families in both cases. 'It's misrepresentation. It's fraud,' Bentley said. The allegations come months after the Chronicle published an investigation into how flaws in the software, called 360Value, and the way insurance companies use it have left many homeowners underinsured after wildfires. The story reported on examinations by the California Department of Insurance, including one into USAA, that found widespread underinsurance following 2015 and 2017 California wildfires related to the insurers' use of the tool. In response to the department's report, USAA agreed to pay more than $11 million back to homeowners and implement procedures to prevent future mistakes. Another investigation into CSAA, the AAA-affiliated insurer for northern and central California, led to more than $40 million in additional payments. USAA is the sixth largest home insurer in California as of 2023. CSAA is the third-largest, and the Interinsurance Exchange the eighth-largest. No insurer responded to a request for comment. Verisk, the creator of 360Value, is not a named party in either suit. A Verisk representative also did not respond to a request for comment. Industry representatives previously told the Chronicle that homeowners are responsible for selecting their own coverage limits and sometimes choose insufficient limits due to poor research or a desire to keep their premiums low. But the lawsuits allege that the homeowners relied on USAA and AAA's recommendations and the insurers' advice that the numbers were adequate. In one case, the complaint specifically alleges that AAA refused to allow a defendant to buy more insurance beyond what 360Value recommended. The Chronicle's investigation found that the 360Value tool can underestimate rebuilding costs and rely on incorrect information about a home, such as the wrong number of stories, leaving homeowners with coverage limits that are at times hundreds of thousands of dollars too low. Verisk representatives previously told the Chronicle that 360Value is simply 'an advisory tool' for insurers that attempts to make an objective analysis based off of millions of pricing data points. They noted there are many factors that can unexpectedly influence the cost of building, such as rapid inflation. The case against USAA alleges three families in the Pacific Palisades and one in Altadena were each signed up for policies ranging between $264 to $538 per square foot to rebuild their homes. However, initial estimates after the fire have put the true cost of rebuilding at $800 to $1,400 per square foot, according to the complaint. The two families suing AAA — one in Malibu and the other in the Pacific Palisades — claim their homes were insured for $278 and $342 per square foot, respectively, leaving both 'drastically underinsured.' Speaking generally, Dan Veroff, a San Francisco-based lawyer specializing in insurance cases, said it's typically difficult to hold an insurer legally responsible if policyholders find themselves underinsured after losing their home. California courts have ruled homeowners are mainly responsible for choosing their coverage limits and making sure they are adequate. However, exceptions exist — for example, if an agent explicitly promises that a homeowner is fully insured, or signs a homeowner up for less coverage than they requested. The Los Angeles fires could reveal a uniquely devastating level of underinsurance. After wildfires, high demand for labor and materials typically causes the cost of rebuilding to rise 15% to 30%, according to research from the data analytics firm Cotality. In Los Angeles, building costs are also rising due to the Trump administration's tariffs on materials such as Canadian lumber and its crackdown on illegal immigration, impacting the local labor market. Most home insurance policies provide a buffer for these types of unexpected costs known as 'extended replacement cost' which typically provides an extra 10% to 50% of coverage. But if a homeowner's base coverage limit is too low, then even extended coverage can't prevent underinsurance. Late last month, the California Board of Equalization held a two-hour hearing into the causes and consequences of underinsurance, citing the Chronicle's investigation. Multiple experts recommended potential legislation to require insurance companies to offer 50% extended replacement cost coverage as a means to combat underinsurance. The board is expected to issue a report with recommendations for legislative and regulatory actions later this month. Bentley said every single one of his firm's clients in the Los Angeles wildfires is 'woefully underinsured.' He said his firm will soon file underinsurance lawsuits against additional carriers in response to the L.A. wildfires.
San Francisco Chronicle
12-05-2025
- Business
- San Francisco Chronicle
A ‘silent threat': California officials announce hearing into wildfire victim underinsurance following Chronicle investigation
California officials plan to hold a hearing later this month to discuss solutions to widespread underinsurance among wildfire survivors, following a Chronicle investigation that exposed the severity of the issue and tied it to insurance companies' use of flawed algorithms to write homeowner policies. In an April 29 meeting of the California State Board of Equalization, the agency tasked with overseeing property taxes on homeowners, Vice Chair Sally Lieber suggested the hourlong informational hearing in light of the Chronicle's 'very substantial and needed journalism around algorithmically driven underinsurance of properties across California, especially in wildfire-prone areas.' In a letter to the board, Lieber said the hearing would focus on the impact such algorithms have on disaster recovery and to discuss possible legislation. 'I consider this the silent threat to homeowners across California,' Lieber told the Chronicle in an interview. Underinsurance is the phenomenon where a homeowner's insurance policy limits are too low to cover the cost of rebuilding their home. It has emerged as yet another challenge facing survivors of the Eaton and Palisades fires in Los Angeles, which destroyed whole neighborhoods earlier this year. While it's still unclear precisely how many of these survivors lack adequate insurance to rebuild, studies of previous blazes in California and Colorado have found consistently that between two-thirds to three-quarters of wildfire survivors were underinsured. A major driver of the problem is insurance companies' reliance on a fundamentally broken system to predict rebuilding costs, the Chronicle's investigation found. Central to the system is a software program called 360Value that agents use to recommend insurance policy limits for homeowners; the tool, which is sold by insurance conglomerate Verisk, is used by companies covering at least 40% of the California homeowner's insurance market, including State Farm, Farmers, CSAA and USAA. Yet 360Value often makes incorrect assumptions about the homes it analyzes, and its underlying pricing data does not adequately capture the high cost of rebuilding in the state, the Chronicle found. Insurance companies have repeatedly learned of these tools' shortcomings for years, through lawsuits and government investigations, and yet have largely failed to fix them. Internal records from a lawsuit filed by Farmers Insurance Group show that the insurer identified near-ubiquitous underinsurance among a group of policyholders who had lost their homes, but stopped its internal investigation after its legal team raised concerns the company's findings could be used against it in court proceedings. Consumer advocates and wildfire victims told the Chronicle that underinsurance was a major factor in why wildfire victims rarely rebuild their homes. Just 2,800 of the 11,000 homes that burned in the 2018 Camp Fire have been rebuilt. In Santa Cruz County, only 144 homes of the 700 destroyed by the 2020 CZU Lightning Complex fires have been replaced. 'These issues reflect directly on the Board's authority to administer the state's Property Tax system, particularly if policies and practices of private companies impact negatively the ability of property taxpayers to rebuild their properties and restore the housing stock in areas impacted by wildfires and by other predictable natural disasters,' Lieber wrote to the board. In addition to overseeing property taxes, the California State Board of Equalization also regulates taxes for certain categories of businesses, including the insurance industry. Its five-member board consists of elected officials across the state, who meet monthly to discuss administrative matters as well as issues that fall under its authority to address via legislative proposals or regulations. 'It's really clear that the victims of the most recent fires in January will be subjected to a lot of market forces. The loss of workers that are not fully documented and the rise in costs of lumber, much of which comes from Canada, will be impacted,' said Lieber. 'It's really essential, from a transparency viewpoint, to make sure that homeowners and owners of businesses in California have an idea of how deeply they may be underinsured.' Ted Gaines, the board's lone Republican, added that he wanted to learn more about how 360Value and other replacement cost algorithms worked, and whether they were adequately accounting for the surge in building costs that typically follows large-scale disasters — a phenomenon known as 'demand surge.' 'Is there a better approach to wildfires, where you're losing hundreds of homes?' he said. 'What if you had contractors, developers, that could come in and say, 'Hey, we can provide some degree of customization, but we can also build in volume? '' The meeting, which will be held May 28, is open to the public and will take place in Sacramento at the May Lee State Office Complex Auditorium. Remote attendees can also watch the meeting via livestream or dial in via the phone number on the board's website. Lieber said she hopes the informational hearing will surface the issues and initiate conversations among lawmakers. She encouraged readers to call or write in with their stories and concerns.
