A homeowner in Nebraska whose roof was damaged during a July windstorm said he is grateful no one was hurt but is surprised by the more than $7,000 he had to pay for the repairs. According to KETV Omaha, the man did not realize his Homeowners Insurance would not fully cover roof damage due to wind or hail, leaving him to pay for almost $8,000 of the $17,000 repair expense after a tree fell on his home during the storm.
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The Omaha man, like many homeowners today, reportedly had a policy that covers the roof’s Actual Cash Value, or ACV, making it subject to depreciation. Roof coverage under Homeowners Insurance can be handled differently based on the policy, and these terms should always be discussed in detail with a knowledgeable insurance broker, said Blake Hankwitz, Underwriter, Personal Insurance Burns & Wilcox, Tampa, Florida.
“Homeowners need someone who is an expert who can navigate them to get not just the right price but the right product for their needs,” said Blake Hankwitz, Underwriter, Personal Insurance Burns & Wilcox, Tampa, Florida. “Your local insurance broker used to be like your local banker who knew all their clients, but that is not always the situation anymore. Now a lot of times, the insurance broker or agent is more like a salesperson versus someone who is providing you with that expertise on your policy.”
There are a lot of individuals experiencing very similar unfortunate circumstances in finding out the details of their policy the hard way.
How insurance covers roof damage
Although some Homeowners Insurance policies still offer Replacement Cost Value (RCV) coverage, it is now more common for insurance carriers to utilize a settlement form that includes a depreciation schedule for the roof, Van Overbeke explained.
“A lot of standard-line insurance carriers used to have guaranteed replacement, where they would cover the entire roof if any part of it was damaged, but now I am seeing a trend in settlement forms,” he said. “If the roof is new, they will replace it completely. After so many years, the value starts to depreciate.”
Between RCV and ACV policies, some carriers may offer “functional replacement” coverage that would provide the best match for a roof’s materials but may not be identical. This type of policy is more common with specialty roofs, Van Overbeke said.
More frequent and severe weather events and rising construction prices have contributed to spikes in Homeowners Insurance rates, according to reports. Homeowners Insurance prices increased an average of 11.3% in the U.S. in 2023, CBS News reported in June, and some states experienced even higher increases. In Canada, Homeowners Insurance increased 7.66% in January this year compared to the same time last year, Global News reported in March.
It is a very unfortunate situation when an insured is surprised about coverage at the time of a loss. … That is why it is really important for advisors to be very, very clear with their clients in terms of their coverage and the specific stipulations that apply.
ACV policies are also common in Canada, “especially for older homes or properties that are highly susceptible to certain perils,” said Michelle Allemang, Manager, Personal Insurance, Canada, Burns & Wilcox, Vancouver, British Columbia. “It is a very unfortunate situation when an insured is surprised about coverage at the time of a loss. That is not what we want to happen. That is why it is really important for advisors to be very, very clear with their clients in terms of their coverage and the specific stipulations that apply.”
A settlement schedule on a Homeowners Insurance policy will specify exactly how much the insurance carrier would pay toward a new roof based on the age of the roof and the date a loss occurs, Hankwitz said. “That way, you do not have to argue in a courtroom on what the depreciation is,” he said, adding that instead, it will specify “this year, they will pay this percent” of the replacement cost. “That is what I am seeing a lot of now.”
According to Hankwitz, inflation has also been a factor in the trend toward more policies covering ACV for roof coverage and other property. “That is what is happening with various parts of your home from an insurance company standpoint,” he said. “You will have to count on a really good insurance broker to walk you through those options.”
Percentage-based deductibles becoming more common
According to a Sept. 10 report from InsuranceNewsNet, roof repair and replacement claims have “skyrocketed” in recent years; one carrier reported a $1 billion increase in hail-related claims nationwide between 2021 and 2022, for example. In March, the New York Times reported that the insurance industry saw $60 billion in losses from severe convective storms in 2023.
In addition to understanding how roof damage would be covered by their Homeowners Insurance, homeowners should familiarize themselves with how their policy would respond to other types of property damage, whether due to hail, wind, lightning strikes, fire, water backup or other perils. This is particularly important if they live in an area more vulnerable to certain types of weather disasters, Allemang pointed out.
“It is so important for homeowners to know what they are opening themselves up to if they move into a more susceptible area,” Allemang said. “As mapping becomes more sophisticated and insurers assess the extent of their exposure in those areas, they will want to mitigate some of that risk in order to obtain profitable results. In these higher-risk zones, depreciation schedules, roof settlement schedules and percentage-based deductibles will be more common so that they can still take on those risks.”
With a percentage-based deductible, the amount a homeowner would be expected to pay in the event of a claim is a percentage of the home’s insured value — in some cases, 1%, 5% or more. This is becoming more common on Homeowners Insurance for wind and hail damage, Van Overbeke said.
“Many homeowners are used to a standard $1,000 deductible, for example, but a lot of carriers are shifting to a percentage of the home value as a deductible. That is catching some homeowners off-guard,” he said, noting that these changes could occur at renewal, so homeowners should review renewal paperwork carefully.
Percentage deductibles are not as common in Canada currently, Allemang said, “but it is something I could see being implemented more.”
“For really high-risk zones, it is a way of having an insurer be a bit more comfortable with taking on the risk but sharing in the risk versus taking the full brunt of the exposure,” she said.
Insurance broker should act as consultant, expert
On some Homeowner Insurance policies, homeowners can purchase additional coverage to ensure damaged roof shingles can be replaced with an exact match, Van Overbeke said. The same option applies to siding.
“That is a big issue, as well. A matching endorsement is now offered as an extra coverage,” he said. “Homeowners can get very upset when those losses come in because they want it to match the rest of the home.”
When reviewing options for Homeowners Insurance, it is best to sit down once per year with a trusted insurance broker. “Ask the hard questions. If my roof is damaged with this policy, how will that be covered?” Van Overbeke emphasized. “Also try to avoid the price-driven scenarios because price-driven usually means there is a catch. Sit down and read the forms. Having an expert sit down and provide the details is what will really help the most.”
While homeowners should always read all pages of their policies “front to back,” it is also an insurance broker’s responsibility to ensure homeowners understand the policy they are purchasing, Allemang said. “We unfortunately are confronted often with individuals who just did not understand how their coverage would respond,” she said. “Having a very consultative advisor is really important.”
[Insurance] is really there for your worst days. That is what we need to cover individuals for.
An insurance broker should be a consultant, not a salesperson, Hankwitz added. “Investigate who you are doing business with just as much as you review the policy forms,” he said. “There are some individuals who see themselves as salespeople and some who see themselves as experts. I would advise homeowners to find someone who is an expert and an advisor. Let them do their job and what they are being paid for, which is to give you quality assistance, not just something to satisfy a mortgage.”
After all, Hankwitz said, “insurance is there for your worst day — of the year, of the decade, of your life.”
“It is really there for your worst days,” he said. “That is what we need to cover individuals for.”
Insurance is intended to cover “the big claim,” Van Overbeke agreed. “[Carriers] want to reduce those small claims so insurance can go back to covering the big claim. You want to make sure the big claim is covered, because that is why they have insurance,” he said. “With the state of insurance as it is right now, start looking at insurance more for the large, life-altering losses and not as much as the maintenance policy that it has been looked at as for so long.”
