To understand why the industry changed, you need to look back to 1992. That’s when hurricane Andrew slammed into south Florida, and completely shook up the industry. Insurance companies lost $12 billion that year, and they couldn’t afford to let that happen again.

So they hired consultants, bought reinsurance to cover their own losses and they began cracking down on their own customers.

"Some things they’re doing are legitimate, they’re buying more reinsurance,” said Robert Hunter, insurance director for the Consumer Federation of America. “But some of them are not so legitimate.”

Hunter has worked in the insurance industry for more than 40 years — as an adjuster, Texas state insurance commissioner and administrator of the Federal Insurance Agency.

“There are hidden deductibles that relate to wind that are now different than the deductible you negotiated,” said Hunter. “They have caps on replacement costs. Then there are other limits where payments won’t be made. For example they’re exclusions now on mold … they used to cover if you had to do something to meet building code because of the damage. They’ve excluded that now.”

And, he says, they came up with an exclusion known as “anti-concurrent causation.”

CNBC: “Anti-concurrent causation? What is that?"
Hunter: “Sounds pretty awful doesn’t it? And it is. It says if two events happen, and one is covered in your policy and the other is not, and they happen about the same time. It doesn’t matter which one happens first we don’t cover either.”

Hunter says the clause is being abused by insurers.

“The big example is hurricane Katrina where you had wind and flood,” he said. “And so the wind battered houses, roofs flew off and so forth. Then along came the storm surge and wiped out the rest of the house. People got nothing because [of the] the flood if it wasn’t covered.”

Hunter estimates as many as half of American homeowners don’t have adequate insurance. And while the industry says that’s usually the fault of homeowners not keeping their policies up to date. That doesn’t explain the case of Karen Reimus. Not only did the company refuse to pay her policy limit, but it turned out the limit itself was too low.

“We had a brand new policy,” she said. “And not only did we have extended replacement, we bought the earthquake rider. I mean, we did everything we possibly could to be properly insured.”

CNBC: “So when the insurance industry says that his whole issue of under insurance is really the insured’s fault, what does your experience tell you about that?"
Reimus: “I didn’t pick the number on the policy, they did. They used their cost valuation software, their program, and they came up with a number. You know, when I go to the dentist I don’t say  ‘Oh are you sure that’s a cavity?’ I went to an insurance professional … I thought, ‘Okay, they know what they’re doing.’”

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