The Unnatural Disaster of Insurance, Underinsurance, and Natural Disasters

This article presents a novel data set that describes insurance industry-wide trends on the pervasive and material inadequacy of homeowner insurance. A large majority of insured homes in the United States are profoundly underinsured, and the homeowners do not know it. Insurance companies have claimed in underinsurance disputes that underinsurance is rare, and when it occurs the homeowner is responsible because the homeowner is equally, if not better, situated than the insurer to know and correct it. The novel data set presented in this article exposes the inaccuracy of the insurance industry’s position. The underlying data has been in the control of the insurance industry for decades, but it has been unavailable to legislators, regulators, and courts. The result is a regulatory regime that protects insurance companies from liability for providing to homeowners inaccurate point-of-sale estimates of the cost of complete reconstruction, even if the estimate is deeply understated in ways predictable to the insurer. Using the data, this article proposes a new jurisprudential paradigm allowing insurers to profitably compete while resolving the ubiquity of homeowners being unwittingly underinsured