Using faulty algorithms and flawed processes, the state’s biggest insurance companies routinely underestimate what their clients will need to rebuild. For wildfire survivors, it’s a gut punch at the worst possible time.

This phenomenon, known as underinsurance, is typically attributed to inflation and the rapid surge in reconstruction costs following mass catastrophes.

But the primary driver of the problem is insurance companies’ reliance on a fundamentally broken system to predict rebuilding costs, which leaves many fire victims without homes and slows the rebuilding of entire communities, a Chronicle investigation has found.

At least four of California’s largest home insurers — State Farm, Farmers Insurance Group, CSAA and USAA — have known for years about these critical gaps from lawsuits and government investigations. Yet all continue to use 360Value to set coverage limits for their policyholders, without telling customers of the program’s known flaws.