One of the most significant changes in decades has occurred to homeowners insurance over the past couple of years, as carriers have finally grown tired of fully replacing older roofs that suffer damage from wind or hail.

While it’s not difficult to understand why carriers don’t want to shell out large claim payments for roofs that should have already been replaced through normal maintenance, the difficulty lies in understanding their process to tackle the issue.

Each carrier is taking their own approach toward new business as well as renewal business, and if you don’t fully understand the coverage forms your carriers are using with this change in philosophy, you could have some angry clients on your hands … or worse.

Following are several examples of coverage forms being utilized in the homeowners insurance marketplace, and we will touch on various considerations.

Example 1: ACV loss settlement endorsement

Some carriers are electing to add the HO 04 93 Actual Cash Value Loss Settlement Windstorm or Hail Losses to Roof Surfacing endorsement (or equivalent) onto their policies, primarily at new business if the roof age doesn’t qualify for replacement cost.

While the language varies between the 05 11, 04 16, and 03 22 versions of the form, the premise is simple: The loss settlement portion of the homeowners policy is amended by the endorsement so that roof surfacing losses will be paid on an actual cash value basis.

There are two immediate problems with this endorsement: 1) It does not provide any sort of roof payment schedule based on the roof age at the time of loss, which leads to ambiguity, and 2) It is absolute, meaning even if the insured replaces their roof, the endorsement still applies and will need to be removed if replacement cost coverage is sought.

Example 2: Loss percentage table with optional replacement cost

One national carrier has built-in language in their homeowners form that states the following:

Roof surfacing losses caused by the peril of windstorm or hail will be paid at the percentage shown in the Roof Surfacing Loss Percentage Table below.

A grid is then shown, starting at age zero then working down to age “30 or more,” and percentages are shown based on the roof types (asphalt, metal, slate, tile, wood, and other).

This is certainly a more straightforward option, but it still can leave you with some unhappy clients. For example, if your client replaced their asphalt shingle roof six years ago, do you think they will be happy with an 82% payout? Probably not.

This is where reason comes into play. Again, depending on the age of the roof when coverage is written, the carrier can elect to add a proprietary endorsement amending the loss settlement wording so that replacement cost coverage applies to roof surfacing and the “loss percentage” reference is deleted.

As we saw with the first example, if the proprietary roof surfacing replacement cost endorsement is not included and the insured replaces their roof, it is up to the agent to notify the carrier and get replacement cost added. Otherwise, the percentage table applies.

Example 3: A percentage approach with no flexibility

One regional carrier’s form takes the idea of a loss percentage table to a slightly different level. Rather than build the language into the base homeowners form as we saw in Example 2, they endorse onto the homeowners form a limited loss settlement endorsement for roof losses stemming from windstorm or hail. The form states:

“Actual Cash Value” is determined by multiplying the cost of repair or replacement of that portion of the “Roof Surfacing” damaged by the percentage shown in the Roof Surfacing Loss Percentage Table below. This percentage is identified by the Age of Roof Surfacing row and the intersecting Type of Roof Surfacing Material column in the Roof Surfacing Loss Percentage Table.

In other words, take the age of the roof, determine what type of roof surfacing material is on the home, and then determine the applicable percentage at the time of loss.

However, the next paragraph in the form is what is troublesome:

The Age of Roof Surfacing is determined by subtracting the Year Roof Was Installed or Replaced as stated on the Roof Surfacing Loss Settlement Roof Age Notice from the Effective Date year stated on your Policy Declarations for the date of loss.

Yes, this carrier includes a separate form that specifies the year their records indicate the roof was installed or replaced and the loss percentage is triggered directly from that (even if it is incorrect), leaving no flexibility at all.

Example 4: A percentage approach with flexibility

A super-regional carrier lists on their homeowners policy declarations the year of roofing installation, the roofing material, and the corresponding loss percentage. Then, if the roof age falls outside the guidelines for replacement cost eligibility, a proprietary roof system limited loss settlement endorsement is added.

The endorsement resembles the ones referenced in Examples 2 and 3, as the form includes the following language:

For “physical loss” caused by or resulting from windstorm or hail to the “roof system”, “we” will pay no more than the percentage of full replacement cost indicated in the schedule below.

The applicable percentage in this schedule applies to the cost to repair or replace the damage part(s) of the “roof system(s)” including any applicable material costs, labor costs, general contractor overhead and profit, sales and other taxes and fees.

A chart then follows and lists roof ages from less than one year up to “30 or older.” Like the previous examples, there are columns by type of roof material (composition/asphalt shingle, tile, shake/wood shingle, metal, slate, and other) along with corresponding loss percentages based on the age of the roof.

The bottom of the table includes the following clarification:

The age of roof is determined by subtracting the year of installation, as indicated on the Declarations from the year of the current policy period effective date.

However, this carrier moves to the front of the pack because another paragraph immediately follows:

If the “roof system” is completely replaced by a licensed contractor, after this endorsement was made a part of this policy, and the “insured” can provide evidence of replacement, the year of replacement will be used in place of the year of installation in the Declarations to calculate roof age.

Obviously, this works in favor of the insured since it is not absolute and takes a common-sense approach to the situation.

These examples don’t contemplate the various deductible options (increased flat deductibles and percentage deductibles) that are being used in conjunction with these types of forms, as that’s an entirely different issue contributing to the difficulties with this change in philosophy.

However, the lesson here is that roof-related coverage stemming from wind or hail losses is most certainly changing and will likely never go back to the way it was. Our job as agents is to understand how our carriers are covering these types of claims and to inform our clients accordingly so that no surprises occur.

The author

Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001. He divides his time among sales, marketing, technology and operational duties. You can reach Marc at marcmcnulty@uhlagency.com.