Home Insurance and Roof Schedules
I recently sat in a meeting with one of our national carriers and heard an interesting statistic. On average, insurance companies who wrote home policies in Arkansas or the surrounding states in 2016 paid $1.30 out in storm related claims last year for every $1.00 of premium they received. That doesn’t include non-storm related claims such as fire, theft, water damage, etc.
The issue facing all home insurance companies is how to remain profitable without raising rates astronomically. One method carriers are examining is roof depreciation schedules.
Most home insurance companies will write either a replacement cost policy or an actual cash value policy (see our Home insurance Coverage page. If the roof needs to be replaced due to hail or wind damage, a replacement cost policy pays the amount it costs to replace the roof with a new one of the same quality less the deductible. For example, a $250,000 home with a $1000 deductible and it costs $20,000 to replace, will pay $19,000 to replace the roof with comparable grade shingles.
Actual cash value policies, on the other hand, pay the depreciated value of the roof less the deductible. For instance, a 10 year old roof covered in 20 year shingles will be depreciated by at least 50% if it’s in excellent shape. If the cost is still $20,000 to replace the roof as in the above example, the total amount paid for the claim will be $9,000 ($20,000 less 50% depreciation less $1000 deductible). The issue with actual cash value policies, aside from the lower claim amount paid, is there’s too much wiggle room when determining the depreciated value.
For insurance carrier to reduce the need to take large rate increases due to loss ratio's, the Roof Schedule has come into play in several states to shift some of the risk back to the consumer. The main issue for the consumer is finding out which insurance carrier has implemented a Roof Schedule and which states they have implemented the schedule in. Because every state has different laws regulating insurance companies, a carrier in Arkansas for example may not have a roof schedule, but the same company doing business in Texas will have the schedule.
How does a schedule work? See our example
Insurance companies believe providing a written depreciation schedule prior to writing a policy enables clients to know the risk up front and make the right decision for themselves. In some cases, home insurance companies may provide a discount for accepting a roof depreciation schedule and charge more for a replacement cost coverage on the roof. Other companies may adopt this approach as their primary offering on all home policies and not offer a replacement cost option at all.
Would you pick this type of coverage or elect to pay more for replacement cost coverage with no schedule on your roof? Share your thoughts and questions on roof depreciation schedules with me on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!
Call us to get a quote on a home insurance policy with NO ROOF SCHEDULE. 479-286-1066