How your roof affects home insurance and claims payout
When it comes to homeowners insurance, your roof has always mattered. However it’s never mattered more than now. Insurance companies are buckling down on writing new policies, renewing existing policies and paying claims based on the age of a roof and/or roof material. Read on to see why this has happened and how insurance companies new requirements may affect you.
How did we get here?
Before we dive in, we need to understand what has been happening in the world of homeowners insurance the past few years. Homeowners insurance has taken a beating with claims, courtesy of Mother Nature. Here’s some facts and figures to to help you:
With the abundance of weather events we’ve had and continue to experience, storm chasers have taken advantage of the opportunity to visit homes and neighborhoods to offer “free” roof inspections. They point to “damage” and recommend turning in a claim to insurance to get a new roof. In the past, often a total roof replacement was done, even if the entire roof was not damaged. These claims are being scrutinized more carefully today.
Lastly, we’re also seeing more claims where a homeowner delays getting a new roof when it’s time (meaning the end of its useful life) and when the claim happens, then they get a new roof. Insurance was never designed to offer an alternative to regular maintenance of a property, yet in many cases it is being used this way.
Impact on our homeowners insurance carriers
Our carriers have been very open in sharing their performance. For the last few years, all three of our homeowners carriers have been operating at an average 120% loss ratio. What this means is that for every $1 collected in premium, $1.20 is being paid in claims. It doesn’t take much to see that they can’t operate like this forever.
And to be clear, insurance companies are a business and must make a profit or they eventually go bankrupt.
So the first tool in the arsenal is increasing premium. And since early 2023, they have been doing just that. Most of our carriers have taken at least one rate increase and some two. An average of 20-30% increase is not uncommon anymore (in Ohio). And again, this is an INDUSTRY-wide action based on claims as detailed above.
In addition to rate increases, carriers are also establishing new roof guidelines for new business, renewing business and for paying claims. Read on for examples of these guidelines.
Roof eligibility for new homeowners insurance policies
Let’s say you’re looking for new homeowners insurance. You contact several insurance agencies to get quotes. One of the questions you’ll be asked is “how old is your roof and what’s the material?” After you answer, here are some of the possible responses from the agency (depending on what options are available).
If your roof is over X years old, we don’t have any options for you (meaning their carriers require a roof that is under X years old).
Because your roof is over X years old, we can only offer Actual Cash value at the time of a claim. This means the insurance company would pay a reduced claim amount based on the roof’s age and condition (you can read more about actual cash value in a prior post).
We will consider, but you will need to have the roof inspected by a qualified roofing contractor (at your expense) and provide the inspection results.
We will consider but you must furnish documentation of the roof replacement.
We will insure the house, BUT must exclude coverage for the roof. This means that not only is the roof excluded from coverage, but any subsequent damage would be as well. Example- a windstorm rips off part of the roof. It rains before the roof can be fixed. Any water damage from the rain would NOT be covered because the loss of the roof is what allowed the water damage to happen (and the roof is excluded).
How can my roof coverage be limited on my existing policy?
Many carriers (ours included) are introducing endorsements that LIMIT the claims payout. Here are examples of what we’re seeing.
A carrier can issue a roof exclusion if available (which was explained in the previous section).
After X number of years, replacement cost is no longer an option for a roof and the claim is paid at Actual Cash Value, regardless of the cause of loss.
Wind and hail claims only are paid at Actual Cash Value.
A wind or hail claim is paid according to a schedule based on age of roof and roof material. For example, you have a 10 year old roof and it’s asphalt shingle. The schedule says you will receive 83% of the cost to repair or replace.
Of course, the carrier always has the option to non-renew or cancel a policy for cause.
These changes will normally take effect at your next renewal, although exceptions may occur. Keep in mind that these examples and options refer to Ohio since that’s where we’re licensed and do business. Other states may offer additional options.
Where do we go from here?
From what I can see, these new guidelines and limitations are here to stay and I don’t ever see a point where we will go backward. This is our new normal.
For new home buyers, it is crucial to understand that the age of a roof and type of roof for a home will determine eligibility (i.e. being able to get a homeowners policy). So you need to find out that information EARLY. Also note, if a policy is able to be issued, it may be limited as to future claims payment, based on what was discussed earlier.
For existing homeowners, age and type of roof will determine continued eligibility, as well as future claims payment.
If you’re thinking of replacing your roof soon, you may want to consider longer term options such as standing seam metal, metal shingles, tile or slate, to help avoid many of the issues we’ve discussed.
