monthly premiums are based on assessed value at the time the policy is written
so a lower valuation means they've been paying less per month for the insurance
they might be way undervalued by the agent, to sell the policy by saying how much lower it is than the competitor - without the homeowner knowing - but in hollywood that's doubtful
insurance companies have left california in the past years due to excessive rules that made them not be able to be profitable
insurance companies can go bad and have bad procedures - but the policies are defined / approved by the state. like always, the big problem is government, and corporations too the extent they are in cahoots with government
my experience in claims is that doctors and moreso hospitals write all kinds of shit for insurance to pay for that isn't legitimate, and there's so much government involved that no one cares enough to fight it, the consumer doesn't even see it. but some of the michael moore nightmare does exist, denial of claims for people who need it.
but property insurance / homeowner's is much better, most adjusters want to include anything they can, and most insurance companies are profitable because they write a ton of policies for people who don't file cclaims. when they get a claim, it's cheapest to just pay it.
what happens a lot though, is the contractor's want to pad the bilsl so they convince the homeowner that the insurance company is the enemy. not understanding their policy legal language, they think everything should always be covered, because that's what the contractor tells them. insurance companies consistently pay out more than the policy actually allows. and most insurance companies i've seen do not push back very hard, unless it is a giant property with a ridiculous claim (like one shingle off a 2 yr old roof and the contractor is adamant that all buildings in the entire condo association need to be replaced for matching)
in this case the problem has been identified correctly - adjusters will be totaling homes based on not what they are worth, but based on what the policy is worth. you don't always have to get a policy that offers coverage up to the total value of the home, which is often a totally different number than what it will cost to rebuild it - especially during catastrophe times with supply chain issues and contractors who are opportunistic. in california.
but these details are not easy to grasp, and most homeowners are ready to blame insurance companies before they blame government policy or the contractor they've chosen, who says they should get a bunch of money.
that said, there will be a lot of problems with getting the right outcome and fairness out of this mess, no matter how well intentioned all involved are. no telling what type of people, contractors, poltiicians, and insurance companies have chosen to stay in that place after what we've seen the past decade.