LA Fire Survivors Face Unexpected Challenge That May Affect More Americans

A year after the Los Angeles wildfires, many survivors face a daunting challenge: their insurance policies are insufficient to cover the costs of rebuilding their homes.

This tragic situation is not isolated; it is likely to recur with each new disaster.

Since the 1990s, American homes have been increasingly underinsured against total destruction. Numerous studies reveal that, contrary to popular belief, many home insurance policies do not guarantee full replacement of homes.

Related: The Return Period for an LA Wildfire-Scale Event May Be Shorter Than You Think

This long-standing trend has remained somewhat obscured, but climate-driven events, particularly wildfires, are now highlighting the severity of the issue.

“Climate change did not cause underinsurance, but it does expose it and amplify it,” stated Kenneth Klein, a professor at the California Western School of Law who specializes in this topic.

Global warming is creating hotter, drier conditions. Coupled with increased construction in areas rich in flammable vegetation—known as the wildland-urban interface—this has led to a surge in destructive fires across the U.S. Researchers at the University of Colorado Boulder found that wildfires in Western states destroyed 243% more buildings from 2010 to 2020 compared to the previous decade. The recent fires in LA alone claimed over 15,000 structures.

Related: California Bill Would Require Insurer Claims Handling Plans, and Double Penalties

United Policyholders, an advocacy group, was established to assist homeowners inadequately covered for rebuilding costs after the Oakland firestorm of 1991. Since 2007, the group has surveyed wildfire survivors, revealing that an average of two-thirds reported being underinsured by at least $200,000.

Further studies corroborate these findings. For instance, an analysis of the Marshall Fire in Colorado, which destroyed over 1,000 homes in Boulder County on December 30, 2021, indicated that 74% of affected homeowners were underinsured.

The Insurance Information Institute, funded by insurance companies, estimates that two-thirds of American homeowners are underinsured for wildfires, typically by about 20% and in some cases by as much as 60%.

Loretta Worters, the institute’s vice president for media relations, noted a “structural challenge in aligning dwelling coverage with actual replacement costs, particularly when reconstruction costs spike after a catastrophic event.”

In essence, the acute demand for labor and materials can inflate prices post-disaster, making it difficult for insurers to predict costs before an event occurs.

This issue was less pronounced before the 1990s, according to Klein, when most U.S. home insurance policies included a guaranteed replacement clause, promising to cover costs regardless of the amount. However, as homes grew larger and more expensive, this guarantee was replaced by replacement-cost-value coverage, which caps payouts.

Rising construction costs and natural disasters made the guarantee unsustainable, Worters explained, while capping payouts helps insurers maintain solvency and keep rates manageable.

Most major insurers rely on third-party estimator tools to set coverage limits. Consumer advocates argue that these tools often underestimate rebuilding costs, allowing insurers to keep premiums low.

One widely used tool is 360Value, introduced by Verisk Analytics Inc. in 2007. Alberto Canal, vice president of corporate communications at Verisk, stated that 360Value considers up to 13 million data points, ensuring consistency with claims data.

Nicole Ganley, spokesperson for the American Property Casualty Insurance Association, emphasized that insurers work directly with policyholders to help them understand and, if necessary, increase coverage limits to align with changing reconstruction costs. The trade group encourages consumers to conduct annual insurance check-ups, especially after home improvements.

Homeowners sometimes sue insurers for allegedly misrepresenting coverage extent. However, Amy Bach, executive director of United Policyholders, noted that courts often place the onus of determining coverage levels on homeowners, which she describes as a “fiction.” She advocates for a return to guaranteed replacement coverage.

“If any state legislature were to pass a law” making it the insurer’s responsibility to fully restore a fire-damaged home, Bach argued, “the problem would be solved because insurers would have to figure out how to get it right to avoid litigation.”

A recent disaster-recovery reform bill introduced in the California state senate would require insurance companies to at least offer guaranteed replacement cost policies.

Colorado Insurance Commissioner Michael Conway mentioned that his state considered a similar measure but ultimately decided it would “destroy our market.” Most major insurers no longer offer guaranteed replacement cost policies and are uninterested in doing so for Colorado customers.

Conway also expressed concerns that such measures wouldn’t address the underlying issue of insurance affordability. “If people can’t afford current market products, forcing more expensive options won’t help,” he stated.

Driven by inflation, increased development, climate change-induced disasters, and tariffs, home insurance prices have soared across the U.S. Conway frequently receives complaints from homeowners who must either reduce coverage or accept higher deductibles to afford insurance. Obtaining a policy that covers the full rebuilding amount would only increase their costs.

Conway suggests alternative solutions, such as incentivizing insurance companies to credit homeowners for taking steps to mitigate wildfire risks. Meanwhile, he worries that “with the next major hailstorm, we will see another wave of underinsurance.”

Top photo: A home burns after a fast-moving wildfire swept through Louisville, Colorado, on Dec. 30, 2021. Photographer: Marc Piscotty/Getty Images North America.

Copyright 2026 Bloomberg.

Topics
Louisiana

A year after the Los Angeles wildfires, many survivors face a daunting challenge: their insurance policies are insufficient to cover the costs of rebuilding their homes.

This tragic situation is not isolated; it is likely to recur with each new disaster.

Since the 1990s, American homes have been increasingly underinsured against total destruction. Numerous studies reveal that, contrary to popular belief, many home insurance policies do not guarantee full replacement of homes.

Related: The Return Period for an LA Wildfire-Scale Event May Be Shorter Than You Think

This long-standing trend has remained somewhat obscured, but climate-driven events, particularly wildfires, are now highlighting the severity of the issue.

“Climate change did not cause underinsurance, but it does expose it and amplify it,” stated Kenneth Klein, a professor at the California Western School of Law who specializes in this topic.

Global warming is creating hotter, drier conditions. Coupled with increased construction in areas rich in flammable vegetation—known as the wildland-urban interface—this has led to a surge in destructive fires across the U.S. Researchers at the University of Colorado Boulder found that wildfires in Western states destroyed 243% more buildings from 2010 to 2020 compared to the previous decade. The recent fires in LA alone claimed over 15,000 structures.

Related: California Bill Would Require Insurer Claims Handling Plans, and Double Penalties

United Policyholders, an advocacy group, was established to assist homeowners inadequately covered for rebuilding costs after the Oakland firestorm of 1991. Since 2007, the group has surveyed wildfire survivors, revealing that an average of two-thirds reported being underinsured by at least $200,000.

Further studies corroborate these findings. For instance, an analysis of the Marshall Fire in Colorado, which destroyed over 1,000 homes in Boulder County on December 30, 2021, indicated that 74% of affected homeowners were underinsured.

The Insurance Information Institute, funded by insurance companies, estimates that two-thirds of American homeowners are underinsured for wildfires, typically by about 20% and in some cases by as much as 60%.

Loretta Worters, the institute’s vice president for media relations, noted a “structural challenge in aligning dwelling coverage with actual replacement costs, particularly when reconstruction costs spike after a catastrophic event.”

In essence, the acute demand for labor and materials can inflate prices post-disaster, making it difficult for insurers to predict costs before an event occurs.

This issue was less pronounced before the 1990s, according to Klein, when most U.S. home insurance policies included a guaranteed replacement clause, promising to cover costs regardless of the amount. However, as homes grew larger and more expensive, this guarantee was replaced by replacement-cost-value coverage, which caps payouts.

Rising construction costs and natural disasters made the guarantee unsustainable, Worters explained, while capping payouts helps insurers maintain solvency and keep rates manageable.

Most major insurers rely on third-party estimator tools to set coverage limits. Consumer advocates argue that these tools often underestimate rebuilding costs, allowing insurers to keep premiums low.

One widely used tool is 360Value, introduced by Verisk Analytics Inc. in 2007. Alberto Canal, vice president of corporate communications at Verisk, stated that 360Value considers up to 13 million data points, ensuring consistency with claims data.

Nicole Ganley, spokesperson for the American Property Casualty Insurance Association, emphasized that insurers work directly with policyholders to help them understand and, if necessary, increase coverage limits to align with changing reconstruction costs. The trade group encourages consumers to conduct annual insurance check-ups, especially after home improvements.

Homeowners sometimes sue insurers for allegedly misrepresenting coverage extent. However, Amy Bach, executive director of United Policyholders, noted that courts often place the onus of determining coverage levels on homeowners, which she describes as a “fiction.” She advocates for a return to guaranteed replacement coverage.

“If any state legislature were to pass a law” making it the insurer’s responsibility to fully restore a fire-damaged home, Bach argued, “the problem would be solved because insurers would have to figure out how to get it right to avoid litigation.”

A recent disaster-recovery reform bill introduced in the California state senate would require insurance companies to at least offer guaranteed replacement cost policies.

Colorado Insurance Commissioner Michael Conway mentioned that his state considered a similar measure but ultimately decided it would “destroy our market.” Most major insurers no longer offer guaranteed replacement cost policies and are uninterested in doing so for Colorado customers.

Conway also expressed concerns that such measures wouldn’t address the underlying issue of insurance affordability. “If people can’t afford current market products, forcing more expensive options won’t help,” he stated.

Driven by inflation, increased development, climate change-induced disasters, and tariffs, home insurance prices have soared across the U.S. Conway frequently receives complaints from homeowners who must either reduce coverage or accept higher deductibles to afford insurance. Obtaining a policy that covers the full rebuilding amount would only increase their costs.

Conway suggests alternative solutions, such as incentivizing insurance companies to credit homeowners for taking steps to mitigate wildfire risks. Meanwhile, he worries that “with the next major hailstorm, we will see another wave of underinsurance.”

Top photo: A home burns after a fast-moving wildfire swept through Louisville, Colorado, on Dec. 30, 2021. Photographer: Marc Piscotty/Getty Images North America.

Copyright 2026 Bloomberg.

Topics
Louisiana