State Studies Roof Insurance Coverage

By Titus, Nancy Raiden | THE JOURNAL RECORD, March 2, 1991 | Go to article overview

State Studies Roof Insurance Coverage


Titus, Nancy Raiden, THE JOURNAL RECORD


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The Oklahoma Insurance Department has asked carriers writing homeowners' policies in the state to provide information on how they handle roofs to find out how extensive problems with replacement cost coverage are.

``We have a call out, asking for information on how insurance companies are writing this coverage,'' said Lametha Brady, personal lines manager for the department. ``We want to know what are their losses with replacement cost coverage versus actual cash value coverage on roofs.''

Replacement cost coverage provides for claims to be adjusted based on the actual amount it would cost to repair or replace the damaged item. Actual cash value coverage provides for adjustments based on the actual repair or replacement cost less depreciation, usually a percentage based on the age and condition of the item before the damage occurred.

``This has gotten out of hand, in my mind,'' said Commissioner Gerald Grimes at last week's meeting of the Oklahoma Board for Property and Casualty Rates.

``We are trying to get it back in control. Things ought to be uniform. It's out of control. The policy holders don't know what they have.''

Brady said the request went out in February, and a report will be given to the board at its next meeting.

``We are trying to find out who's offering what kinds of coverage and what their experience is,'' she said.

Last week, Allstate Insurance Co. received approval from the state rate board to drop its replacement cost coverage endorsement for roofs on about 29,000 Oklahoma policies.

In explaining the filing before the board, Allstate representatives said the company had lost money on Oklahoma homeowners' policies in 19 of the last 20 years. They said they had had a lot of hail damage claims and cited coverage on roofs as the main problem.

The board action allowed Allstate to drop the replacement cost endorsement on all but one of its homeowners policies subject to having the policy holders sign a disclaimer stating that they understand they no longer have the broader coverage.

``I agree with what's behind this,'' Grimes said.

The guaranteed replacement cost endorsement, which is added to the main policy, was designed to counter the actual cash value provision in the basic Oklahoma policy.

Oklahoma is the only state with this provision for roofs. It was introduced in the 1960s as a means to hold down rates, Brady said. Before the provision, roof servicing was done on a replacement cost basis.

``Then guaranteed replacement cost coverage was introduced by the industry about five or six years ago,'' she said.

That coverage was designed to allow the insured to get the entire cost of rebuilding the house in the event of a total loss. The state board extended the replacement cost coverage to roof servicing.

The endorsement was inexpensive, but it required that the insured carry insurance on 100 percent of the value of the home instead of the usual 80 percent, Brady said.

``The leading writers do have that coverage.''

But the trend may be turning.

Major insurance companies, like Allstate, have begun to scale back the coverage or have opted to leave the state all together at least partly as a result of the high cost of roof replacement.

Last November, the state rate board approved a filing by State Farm Fire and Casualty Co. in which it introduced separate endorsements with different premiums based on the type of roof.

Low profitability has been cited by major insurance carriers that have left the state, including Aetna Life & Casualty Co. and Travelers Indemnity Co.

The Allstate representatives told the board the coverage problem had gotten to the point where no one will repair his roof voluntarily.

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