CNBC Business Nation: Are you insured?

Katzman now works as a public adjuster — someone who represents the homeowner after a loss. She says insurance companies routinely use the computer programs — which are supposed to calculate replacement costs — to low-ball clients instead.

“They price contents, structure, cleaning, whatever you may need for a house you can get out of this program,” she said. “However, you can override any pricing program. I’ll get estimates from various companies where for paint or drywall, the prices will be a nickel or a dime off. And that may not sound like much. But when you’re looking at, you know the square footage of a room, that adds up very quickly.”

“It’s [a] competitive industry and obviously, if you collect a premium and don’t pay claims, you make more money,” said Sandy Praeger, president of the National Association of Insurance Commissioners, and the state insurance commissioner in Kansas. “And that’s pretty simple math.”

Praeger agreed to meet us in Greensburg, Kan. The town of 1,500 was wiped out by a tornado last year, and became a symbol, for critics, of the problems with homeowners insurance.

"Most of the companies in Greensburg paid policy limits,” said Praeger. “But if there’s an opportunity for any kind of an adjustment to benefit the company, I think they will try that first.”

That’s exactly what they did with John Stoltenberg, who rode out the tornado in his neighbor’s basement and then emerged into disaster.

CNBC: “What did you see?”
Stoltenberg: “Just a lot of chaos. People walking around with a blank stare on their face. And then the farther into town I got, I would have to literally stop and look where I could get some sort of direction because all the landmarks were gone.”
CNBC: “How badly was your house damaged?”
Stoltenberg: “It was going to take a whole new roof. All new siding. Some of the walls were not square anymore. You could tell the foundation had shifted. It sat on a concrete foundation. The blocks were cracked.

His insurer offered him just $22,000.

“I’m not a contractor, but I kind of have an idea what building materials cost,” said Stoltenberg. “And $22,000 would just cover the cosmetic damage.”

Stoltenberg contacted commissioner Praeger, who got the company to pay $80,000 — the full value of his policy. She says she’s been getting so many complaints about homeowners insurance lately, she’s had to add staff.

“We had an issue here in Greensburg with one of our companies saying that if you have one wall standing, that they didn’t have to pay policy limits,” said Praeger. “That you would rebuild around that one wall. We did not allow them to use that kind of argument.”

CNBC: “Is there something inherently wrong here?”
Praeger: “Well, I think what we see more and more of is companies trying to avoid risk and maximize profits. And they’re in the business to make a profit, so there’s nothing criminally wrong with that. But I wish we could get back to a philosophy of insurance being managing risk and not just trying to avoid risk.”

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