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California’s Office of Administrative Law Approves Homeowners Underinsurance Regulations

House and Money

Because of fairly recent California wild fires and California’s history of rising property values (at least this was the case a few years ago), many California homeowners have found themselves underinsured for fire losses.  The California Department of Insurance has been considering new regulations governing standards and training for estimating replacement value on homeowners’ insurance for some time.  California Insurance Commissioner Steve Poizner had previously called for regulations that would provide more comprehensive and reliable estimates of what it might cost to completely rebuild a destroyed home.  Such estimates were previously unregulated and led homeowners to believe they needed less coverage than they truly did in the event of a disaster.

Poizner announced last week that his new regulations designed to combat underinsurance were approved by the Office of Administrative Law on December 29, 2010. The regulations will take effect June 27, 2011.

The Regulations:

  • Require all California resident fire and casualty broker-agents and personal lines broker-agents, who have not already done so, to satisfactorily complete one three-hour training course on homeowners’ insurance valuation prior to estimating the replacement value of structures in connection with, or explaining the various levels of coverage under, a homeowners’ insurance policy;
  • Require insurers, agents and brokers that provide replacement cost estimates to applicants and insureds to document who created the estimate and the sources or methods used to create the replacement cost estimate; and
  • Require that all replacement cost estimates communicated to applicants or insureds be complete, based upon specifically enumerated standards set forth in the regulations.

The Regulations represent the final phase of Poizner’s plan to reduce underinsurance.

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