Viewpoint: Actual Cash Value on Roof Claims a Fairer, Simpler Way to Pay

May 25, 2023

In the May 15, 2023 Insurance Journal, independent adjuster Ben Mandell shared an opinion that Florida insurance policies have “one glaring endorsement that is missing” – roof endorsements that could have “eliminated or greatly minimized” Florida’s insurance crises. He argues that offering a stated value endorsement of $5,000 or $10,000 would limit the carrier’s maximum exposure and keep premiums more affordable. He asks, “Why won’t the Florida insurance companies support a roof endorsement?”

For the past several years, the insurance industry has worked tirelessly with insurance agents, roofing contractors, the Florida Legislature and regulators to push for an endorsement that would pay a claim on the actual cash value (ACV) of a roof, like more than 40 states in the U.S. have.

Under ACV, an insurance company’s claim payout would be based on the pre-damaged roof’s current value, considering its age and condition. That’s exactly how automobile insurance claims are paid and how tire warranties work – by paying based on the remaining life of the tire. As one reader rightly commented, “If you have a 15-year-old roof damaged by hail, why should you get paid for the cost of a brand-new roof? You don’t get a brand-new car if your car is totaled in an accident.”

Under ACV, consumers would save on their premiums. Insurance companies would have the option of offering consumers RCV (replacement cash value) coverage at an additional cost.

A stated-value endorsement for roofs, as Mandell espouses, would put a consumer at risk by capping a roof repair when we’ve seen turbulent price fluctuations in roof-repair labor and supply costs. The other problem is that such endorsements could still be manipulated by the “bad guys” who could take a $2,000 roof claim and turn it into a $10,000 payout or whatever an endorsement’s maximum payout value is.

Unfortunately, there has been little interest among policymakers to change the current RCV requirement, beyond the passage of a 2022 law, known as Senate Bill 4D. The law modified the state building code, which for years had required that if more than 25% of a roof is being repaired, then the entire roof must also be replaced in order to meet code, in many cases. Now, when an area is repaired, only that section has to meet the current codes, essentially allowing insurers to pay for more repairs instead of full replacement.

But that exception to the code requirement applies only if the roof was built since the 2007 Florida Building Codes were adopted. And much debate remains about the definition of “25%.” A simpler approach, allowing ACV for most roofs, died in the 2022 regular session of the Legislature, thanks in part to opposition from some in the roofing industry.

The rationale behind the objections to allowing ACV is limiting a vibrant insurance market. But it helps to outline what we know about those objecting.

First, public adjusters and plaintiff lawyers, who are compensated based on the dollar amount of a claim, have not publicly supported, and in fact have been leaders in fighting, any attempt to have HO-3 policies automatically include ACV for total roof damage expense. Most who are familiar with the Florida insurance industry and follow its litigation trends realize that the vast majority of claim disputes arise from roof damages where the public adjuster and/or plaintiff lawyer insist in their estimate on a new roof for the consumer. One public adjuster recently complained to a reporter that an estimate was “drastically reduced” from the RCV the adjuster used, to ACV, which was actually the optional coverage the consumer chose at the time the policy was sold. When the public adjuster was asked for the policy provision on which his estimate was based, he was unable to produce it.

These groups loudly proclaim that requiring ACV roof-claim policy provisions will harm consumers when, in fact, public adjusters and lawyers have an incentive to include full roof replacement in their claim estimate. Roof costs can be as much as 70% of a storm claim estimate and limiting roof restoration to ACV versus RCV would be disadvantageous to the public adjuster and legal community. In fact, some in the independent adjuster community oppose changing RCV to ACV in Florida’s laws because their compensation would be limited if the change were to take effect.

Second, it appears the majority of insurance agents and those that represent them fear customer retaliation if they “discover” at the time of claim that they only have ACV versus full roof replacement costs. In conversations with agents, they will immediately say that they believe they would face an errors and omissions (E&O) allegation from a consumer who is angry that the roof won’t be replaced via RCV. Many insurance experts have tried to reason with these agents that having proper documentation about ACV versus RCV at the time the consumer purchases a policy is the best E&O claim prevention.

Having a consumer sign a document that they understand they will need to pay the difference between ACV and the full cost of a roof replacement is the right thing to do. To date, the insurance agents as a whole have not supported a standard ACV roof provision except as a consumer option. We look forward to agents publicly supporting legislation that, as Mr. Mandell points out, would greatly eliminate or minimize our insurance industry crisis.

The next group of opponents to an ACV provision are the roofers. There is a price difference between a claim paid using ACV versus RCV and the roofers are the group that stand to lose revenue if ACV became the law of the land. For many years, the roofers have led the charge to prevent ACV provisions and been successful.

Next up are regulators and legislators who have not supported ACV provisions in Florida’s insurance code. Many say they believe it is anti-consumer in that consumers won’t understand that they only have ACV provisions when and if their roof is gone. It is my belief, and perhaps Mr. Mandell’s, that it is anti-consumer to have a system that encourages old roofs to be replaced with a new roof at an insurance company’s expense, which ultimately becomes the expense of Florida’s 7.5 million policyholders.

As Mr. Mandell points out, this should be about consumer choice. We look forward to this continued dialog among all parties that will publicly support ACV on roofs, with all stakeholders working together to put Florida in line with other states whose insurance markets are balanced and thriving.

Lisa Miller is a former Florida deputy insurance commissioner who now serves as a disaster insurance and recovery expert and CEO of Lisa Miller & Associates, a Tallahassee, Florida business development, government consulting, and public relations firm. She consults with insurance companies that write more than 2.5 million homeowners insurance policies.