The Marshall Fire, which swept through Louisville and Superior Colorado in December 2021, destroyed 1084 homes, businesses, and other structures. Accompanied by a fierce wind, the fire moved quickly, taking the communities by surprise. Until December 30, 2021, fire had not been a major concern for the residents.
A total of 951 homes were a total loss and their claims amounted to 1.02 billion dollars. Only 76 carried guaranteed replacement coverage, so 92% of the lost homes were underinsured in some way. With rising interest rates, skyrocketing home prices in Colorado, and a scarcity of qualified contractors, these homeowners are on the hook for hundreds of thousands of dollars to rebuild.
Most of these residents had typical homeowners' policies that reimburse for the cost of the home at the time of the sale. Some owned decades-old properties that were insured for a price woefully below the cost of rebuilding in today’s competitive and complicated market. They may not be able to rebuild in their neighborhoods or even in Colorado. Their loss is multiplied by the financial realities they faced once the smoke cleared.
Nationwide Insurance estimates 66% of American homes are underinsured and that the average uninsured amount is 22% below what is considered adequate coverage. Some homeowners are underinsured by 60% or more. Like the Marshall fire victims, these people are likely unaware of the financial impossibilities they would face if the unimaginable happened.
Independent agencies can help
The status of underinsured property is devastating for property owners, including those who have already experienced loss and those who don’t currently understand their coverage gaps. But these issues open space for independent agencies to connect with clients to explain the gaps that may exist in their current policies. Well-informed agents who are ready to discuss the current real estate and building materials costs, the status of contractors, and the issues inherent in rebuilding can help clients readjust their policies before the wildfires or other natural disasters leave more families inadequately protected.
Reaching clients about the gaps in their property insurance is also an opportunity for agencies using automated client communication tools. Wildfire and hurricane seasons occur when summer starts, and it’s the right time to teach clients about their insurance coverages and to encourage them to address the gaps. By directing communications to clients who meet certain profiles, live in threatened areas, or whose homes are aging, agencies can start conversations about adjusting coverages to truly align with the cost of replacing property.
Finally, encouraging clients to understand the true value of their home goes a long way toward helping them purchase adequate coverage. Some lenders offer a free comprehensive calculator that analyzes the countless variables that factor into the rebuilding price of a home. Clients who thoroughly understand the difference between insuring for the purchase price or insuring for the replacement cost are more ready to commit to buying the added coverage that will protect them if they face a devastating loss.
As weather becomes more extreme, inflation continues to affect the price of materials, fewer contractors are available for rebuilding projects, and current homes continue to age, addressing the growing problem of being underinsured becomes more important. The numbers are convincing, and most homeowners are unknowingly at risk. Agencies can be a first line of defense—and that’s great news.