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Catastrophe threats limit cover for old roofs


Insurers are increasing their scrutiny of the age and condition of commercial building roofs and imposing more restrictive terms under property policies.

Commercial buildings with older roofs that haven’t been updated and those located in regions exposed to windstorms, severe convective storms and wildfires are seeing insurance coverage for roof damage limited by a variety of policy provisions, experts say.

And coverage restrictions have accelerated in the wake of numerous named windstorms, tornados and hail events in recent years, according to several brokers.

Properties located in the south Florida tri-county region, comprising Broward, Miami-Dade and Palm Beach counties, are seeing the most restrictive roof coverage in policies, said Jeff Buyze, Fort Lauderdale, Florida-based national property practice leader at USI Insurance Services LLC.

Changes include covering older roofs on a depreciated, actual cash value basis rather than on a replacement cost basis, Mr. Buyze said. Initially, this applied to roofs that were more than 15 years old, but insurers are now limiting payouts to actual cash value on buildings with roofs that are just five years old, he said.

The definition of roof covering has also broadened to include roof decking, so that any damage to decking falls under the quote on roof covering, he said.

“Picture a 10,000-square-foot commercial real estate building. … The delta between replacement cost and actual cash value is quite often massive. You could be talking about hundreds of thousands of dollars,” Mr. Buyze said.

Occupancy classes seeing more restrictive roof terms include habitational accounts and public entity business, especially municipalities and school districts, said Peter Fallon, national property practice leader at brokerage Risk Strategies Co. Inc. in Boston.

“It’s those accounts where … they just haven’t put the money into the maintenance to make sure their roofs can withstand hail and wind damage, so underwriters are saying, ‘We are going to have to do something,’” Mr. Fallon said.

Tighter roof terms are affecting admitted as well as non-admitted risks, he said. “We’re seeing it in the standard market, too,” he said.

Changes tend to be dependent on roof age, especially those that are more than 15 years old, Mr. Fallon said. Where coverage applies on an actual cash value basis, insurers may also impose a surcharge and a higher deductible, he said. Insurers may also add component deductibles to reflect an additional exposure such as water damage, he said.

Underwriting scrutiny based on roof materials is a focus in areas exposed to windstorm, hail and wildfire, said Michael Korn, global property and marine leader at EPIC Insurance Brokers in San Francisco.

In the case of wildfire, underwriters are concerned that embers can travel miles from a wildfire and land on a combustible roof and start a fire in a different area,   Mr. Korn said.

Many roofs on buildings in California are constructed of wood or with shingles, he said.

Valuations are increasing to help cover the rising costs of roofs and to ensure buildings are insured to value adequately, said Randy Doss, Houston-based senior broker at CRC Insurance Services Inc.

“Let’s say the norm five years ago was $65 a square foot for frame buildings. Nowadays they’re up to $100 or $110 per square foot for frame buildings to kind of offset some of those roof costs,” Mr. Doss said.

Variations in building codes in different states and problems with roofing contractors in certain states might also affect the terms that are available, he said.

Values overall have become a focal point for the market, specifically on roofs in high-hazard zones that are subject to the vagaries of wind, rain and water damage, said Henry Daar, Chicago-based executive vice president and head of property claims at Willis Towers Watson PLC.

“Carriers don’t want to pay for the same thing twice or three times,” Mr. Daar said.

In the case of a roof that has been previously subject to loss but hasn’t been repaired, insurers will either exclude from coverage pre-existing unrepaired damage or limit what they cover to a percentage of the damage, he said.

Other clauses limit the amount insurers will pay out for so-called cosmetic damage to a roof — for example if a hailstorm results in pock marks but is not determined to have caused loss of structural integrity, he said.

Roof claims can be costly and based on the roof composition and building structure run the gamut anywhere from a $25,000 loss to a $5 million loss, Mr. Daar said.

Insurers enlist artificial intelligence to better gauge structural risk

Advances in technology are helping underwriters better analyze and understand roof exposures, experts say.

Insurers are using new tools to evaluate the conditions of roofs, not just as a snapshot, but over a period of time, said Jeff Buyze, Fort Lauderdale, Florida-based national property practice leader at USI Insurance Services LLC.

They are incorporating satellite imagery and artificial intelligence to identify certain conditions, such as ponding; where a roof has been patched; tree overhang; and if there are solar panels or other equipment present, he said. 

“Technology is playing a big role in helping carriers assess what they’re exposed to,” Mr. Buyze said. 

In the 30 years since Hurricane Andrew, building codes have been improved, and much has been learned about the structures of buildings, how different types of roofs respond to wind and wind-driven rain, and how they can be strengthened, said Robert Tull, Philadelphia-based assistant vice president, lead property consultant, global risk solutions, at QBE North America.

By using an enhanced version of Google Earth Pro, QBE can tell if water is ponding on a roof, if there is discoloration due to debris, or if there is venting that would be susceptible to wind-driven rain, Mr. Tull said.

Policyholders are encouraged to have their roof inspected by a professional at least once a year to look for deterioration of the roof covering itself, to check whether the flashing needs any repairs, and to see if drains are clear and operative, he said.

Underwriters are getting creative and doing things they haven’t done before to understand better what their exposure is, said Peter Fallon, national property practice leader at brokerage Risk Strategies Co. Inc. in Boston.

They are using technology, such as drones, to gain an aerial view of a roof’s condition and in some cases pulling construction permits to see what kind of work may have been done to a roof and to check for repairs, he said.