Real EDvice

Important changes to know about roof insurance coverage

Editor’s Note: Welcome to Real EDvice—a weekly column written by your community professionals in the real estate industry. 


For The Vista

Homeowner’s insurance policies in Tennessee are standardized to make thing easy for consumers.

That means you may have a reasonable expectation the coverages would be similar from company to company.

There are subtle differences and added features, but this helps clients compare companies and select the insurer who best meets their individual needs.

In recent years, Tennessee homeowner’s insurance companies have made some changes in response to worsening weather patterns in the Midwest and Southeast.

We began seeing an increase in catastrophic weather events, rivaling what one might expect in the Plains state, but not usually in Tennessee.

In April 2011, we experienced the most expensive storm in Tennessee’s history, making our state the most unprofitable state for homeowner’s insurers in the nation.

In 2012, things improved, but weather losses were still 8-10 times higher than our state’s 50-year average. Consequently, state insurers reacted by raising premiums, implementing higher minimum deductibles, and most made changes to the way we cover wind and hail damage to roofs.

Today, I’d like to focus on these policy changes and how roof damages are handled today.

For many years, roofs were adjusted primarily on a replacement cost basis. This means, in the event of a windstorm, the insurance company paid the entire amount to replace the roof material, less the customer’s deductible.

This worked pretty well, but there were challenges.

For instance, as roofs aged, it was difficult for adjusters to determine what was damaged by hail and what was normal wear and tear. So, often, insurance adjusters were replacing roofs which were just old—and not damaged due to climate events. This action resulted in additional rate increases that passed on to all insurance consumers.

After paying out substantial losses in 2011 and 2012, insurance companies began selling Actual Cash Value (ACV) coverage on roofs. This allows companies to depreciate the shingles as they age. In simple terms, if you installed a 30-year roof, and 15 years later it is damaged by hail, then the insurance company would pay for half and the insured would pay for half.

The ACV method is fair and helps keep premiums lower, but clients do have to share more in the loss.

There are hybrid options available too. Some companies insure for replacement cost until the roof is 10 to 15 years old, but change the coverage to ACV afterwards.

Also, there are very few companies who’ll insure a new customer with a roof over 20 years old today.

Lastly, some companies have gone one step further and implemented percentage deductibles for roofs, typically 1% of your Coverage A – Dwelling Coverage.

So, what does this mean to you? When you are shopping or reviewing your insurance policy, you need to be aware of these changes.

The premium for replacement cost coverage is typically about 10 to 15% more than an ACV roof settlement.

Furthermore, clients need to alert their insurance agent or companies when roofs are replaced.  Depending on the company, you will likely see a reduction in your premium and have an opportunity to upgrade your coverage.

Art E Gernt, II, Gernt Insurance Group, (931) 484-3448 Office, (931) 260-4649 Mobile