Tennessee Regulators Say Insurers Weighing Shift in Roofing Policies

Tennessee regulators observed that in recent months, some property/casualty insurers in the state have filed to expand or shift their roofing policy terms to include actual cash value policies. As a result, Tennessee’s Department of Commerce and Insurance is reaching out to consumers to help them understand the difference in coverage.

Regulators explained that:

Regulators stated that replacement cost benefits will generally pay more for a claim than will ACV benefits. However, not all dwellings/items will qualify for full replacement benefits – determinations may be made on a situation-by-situation basis as companies inspect properties to resolve coverages they may make available based on the property’s condition and the company’s underwriting guidelines.

For example, regulators asked consumers to consider a hypothetical, $10,000 roof that is now five years old. When assuming that the roof needs to be replaced entirely and the homeowner has a $1,000 policy deductible:

• Under an ACV policy, the insurance company may determine that $500 of wear and tear/depreciation occurred each year since the roof was installed. At the time of the claim, the company would pay $6,500. Depreciation would have reduced the payment by $2,500 (5 years multiplied by $500 wear and tear per year) and the $1,000 deductible would also reduce the payment. The consumer would choose between making up the difference to pay for a roof of similar quality, or using the money to install a roof available at that price.

• Under a replacement cost policy, the insurance company would pay the amount required to replace the roof with similar-quality materials at today’s cost, minus the deductible. In the event that the same roof costs $11,000 at the time of the claim, the company would pay $10,000-$11,000 for the replacement roof, minus the $1,000 deductible. (Note: Insurance companies may initially pay the actual cash value for the roof, $6,500 and then reimburse the difference following submission of a receipt.)

Regulators advised that Tennessee insurance consumers should not feel that they must accept or keep a policy that does not cover their needs. Regulators encouraged consumers to shop around when seeking a policy and at renewal to ensure that they receive the coverage that they want at a price that they can accept. Consumers should also read their policies to better understand their coverage terms and should feel free to ask questions to agents and brokers.