This San Diego Union-Tribune story from 2005 explores that question. In light of the recent California wildfires, it is worth a look back to see what resulted from the supposedly large numbers of people who were underinsured in the 2003 wildfires:
More than 96 percent of Scripps Ranch fire victims are building bigger houses, and 69 percent are getting houses at least 500 square feet larger than before, according to a San Diego Union-Tribune analysis of city records.
New homes now stand shoulder-to-shoulder on the lots, with less room in between for privacy. In a neighborhood where 60 percent of fire victims said in one survey that they were underinsured, how did they do it?
Read the whole thing, as they say.
By the way, here are some stats from the State of California on insurance complaints stemming from the 2003 wildfires. As you can see, a lot of people said they were underinsured.