The insurance industry is rapidly changing, and I want to discuss one of the important changes that has happened in the past twenty-four months. Recent events from severe weather losses have compelled insurance carriers to place a greater emphasis on the age and condition of critical home components, including electrical systems, plumbing, heating, cooling, and roofs.
The most notable of these systems is your roof. As a roof ages, its surfacing and integrity diminish making it more vulnerable to damage from wind and hail and other weather factors. With the severe climate patterns such as hailstorms and tornadoes that have occurred in our area (Ohio currently leads the U.S. in tornado activity in 2024 and is on pace to easily surpass the all-time state record1), coverage providers are compelled to make adjustments to insurance premiums and the way in which some damage is paid.
How The Insurance Industry Is Responding
For many years, the insurance companies have made it a practice to replace roofs at the full cost to do so when they have been damaged by wind or hail. The recent changes in the weather patterns outlined above have caused these losses to become significant and catastrophic in nature.
These devastating losses caused by wind and hail coupled with the dramatic increase in the cost of repairs due to inflation has created a challenge for insurance carriers to remain solvent and in a financial position to pay claims to their policyholders. As a result, insurance companies are adapting their coverage models to mitigate risks effectively and fairly.
Actual cash value (ACV) is the amount equal to the replacement cost minus depreciation of a damaged or stolen property at the time of the loss.
Enter Actual Cash Value (“ACV”) coverage—a fundamental shift in insurance reimbursement strategies. Instead of offering full replacement cost coverage, insurers are transitioning to ACV coverage, which factors in depreciation when reimbursing policyholders for roof damage. ACV works under the principle that a dwelling featuring a roof with age is owed for the remaining life of the roof. It should be noted here that the ACV loss provision only affects damage to roofs caused by wind and hail. Perils such as fire and falling objects that damage the roof are still covered at replacement cost. This pragmatic approach aligns with the industry's efforts to balance cost containment with adequate protection.
Most insurance companies have taken the stance that they will cover a roof for replacement cost for anywhere between 10 to 15 years as the typical life of most roofs does not exceed 30 years2. After the period the carrier has elected, they convert the coverage to the depreciated value ACV. When the policy is endorsed for ACV, it only pays for the remaining life of the roof at the time of loss.
Proactive Measures: What You Can Do to Ensure Your Covered
One key and critical change with the roof age becoming a factor in how your claim is settled is that carriers are increasingly insistent on obtaining evidence of a roof's age. Whereas in the past a client was able to approximate the year that a roof was replaced when having it covered, carriers are now requiring a receipt as evidence of the roof age. In the absence of receipt documentation, many roofs damaged by wind and hail will be settled on actual cash value. For this reason, we are urging all clients that have a roof replaced to do so with a reputable and known contractor and to retain a copy of the receipt showing the date and scope of the roof work. The retention of receipts is equally important for any home system update you perform including, but not limited to, heating, cooling, electrical and plumbing.
Retaining home repair and replacement receipts in physical or digital form is going to become critical to your coverage.
Keep in mind that homes that were insured several years ago may not be adequately insured at this time and a review may be necessary to ensure that you will have the coverage you need in the event of a loss. Moreover, be certain that you notify us of any major changes or improvements to your home such as additions, finished basements, or decks. All these effects your home’s replacement cost.
Remember, staying informed about changes in insurance coverage is paramount for every homeowner. By proactively addressing ever changing risks and optimizing coverage options, you can ensure the long-term security of your most valuable asset—your home. Williamson Insurance is here to help.
1 The Weather Channel (weather.com)
2 Architectural Digest (architecturaldigest.com)