Will your home insurance policy pay to fully replace your roof if it’s damaged in a hailstorm, a tornado, a fire, or by a falling tree branch during a summer thunderstorm? Or does your policy cover only your roof’s depreciated value, leaving you on the hook to pay thousands — perhaps tens of thousands of dollars — if you suddenly need a new one?
It might be time to check. Several insurers have been offering reduced roof coverage as an option over the past two years. And you might have unwittingly elected that option at your last renewal if you were seeking the lowest possible price and didn’t ask your agent to carefully explain how that was calculated.
Soon, you might not have much choice. A recently filed state Senate bill proposes allowing insurers to substitute depreciated-value roof coverage in their standard multiperil policies. Full replacement coverage, now required under state law with those policies, would be offered at insurers’ discretion at a higher cost.
Insurers say the downgrade is necessary to keep insurance affordable if your roof is more than 10 years old and you need to insure your structure, contents and personal liability.
But reducing your coverage could become a problem for you and the bank that owns your mortgage loan. Chances are, the contract you signed when you agreed to your loan requires you to maintain full replacement coverage for everything that could go wrong with your house.
A question of survival
Insurers and their supporters say they have little choice. Florida’s home insurance market is in crisis, with most companies in the state reporting operating losses over the past five years, thanks to excessive claims and litigation.
The culprits, insurers say, are a small number of large roofing contractors and the attorneys that work for them. They’ve been exploiting a Florida building code requirement that forces full roof replacement if more than 25% of the roof is damaged.
Contractors dispatch teams to canvass neighborhoods, asking homeowners to let them inspect their roofs. If they find damage, they search old weather reports for a storm that could have caused the damage, then pinpoint it in an insurance claim demanding full payment for a new roof, often at inflated prices. If insurers balk at the claims, attorneys are standing by to litigate on roofers’ behalf.
Insurers say the practice is killing their industry and driving consumer costs to unsustainable levels. Some consumers say their insurance costs more than their mortgage loan each month.
Three insurers — Florida Farm Bureau, United Property & Casualty, and TypTap — recently announced that they won’t be writing new business in the state for the foreseeable future. Southern Fidelity is seeking authorization from state regulators to raise its average rates 84.5% for 14,757 multiperil policies and 111% for 44,042 dwelling/fire policies.
Meanwhile, several insurers are expected to declare insolvency because they won’t have enough reserves to to purchase required levels of reinsurance prior to the June 1 start of hurricane season, state Sen. Jeff Brandes, a Pinellas County Republican, warned last week.
To remain solvent, insurers have two choices, says Paul Handerhan, president of the consumer-focused Federal Association for Insurance Reform. “They can reduce coverage or raise prices,” he said.
They’ve been raising prices. Now they’re seeking to cut coverage, Handerhan said.
The depreciated roof proposal, part of a larger insurance bill filed by Senate Banking and Insurance Committee Chairman Jim Boyd, would reimburse homeowners based on the age of their roof and the materials used to build it.
Exceptions would be roofs less than 10 years old, which would still be covered for full replacement cost, roofs that must be replaced if the structure is declared a total loss, and damage sustained in a hurricane named by the National Hurricane Center.
The proposal cleared the Banking and Insurance committee by a 9-2 vote on Feb. 2. Opponents Annette Taddeo and Darryl Rouson, both Democrats, said they worried that low-income homeowners would be unable to come up with their share of the replacement cost if necessary.
Would lenders allow coverage downgrade?
Insurance agents contacted by the South Florida Sun Sentinel said they were concerned that homeowners who accept the depreciated roof coverage could risk being out of compliance with terms of their mortgage loans, which typically require full replacement coverage.
Those terms are dictated to lenders by federal mortgage guarantors, including Fannie Mae and Freddie Mac, which combined back 63% of all single-family home loans in the United States.
Spokespersons for Fannie Mae and Freddie Mac contacted for this story pointed to language in their loan-purchasing guidelines that require borrowers to have full replacement coverage in place before the guarantors will purchase the loan from a lender.
Anthony DiMarco, executive vice president of governmental affairs for the Florida Bankers Association, worked with Sen. Boyd when a similar reform was proposed during the 2021 spring Legislative session.
He told Boyd that other states enacted laws allowing insurers to offer actual cash value coverage, rather than replacement coverage, for various risks, and generated no opposition from Fannie and Freddie. But those states were not as populated as Florida, nor do they have as much insured property value, he said.
DiMarco said he reached out to officials of Fannie and Freddie for clarification on their policy but “we can’t get a straight answer.” He added, “We have concerns that yes, the homeowner could be out of compliance if they are not insured for replacement costs. We are trying to track it down.”
Boyd said the Legislature and insurance industry wouldn’t allow homeowners to be put “in jeopardy with their mortgages” if Fannie and Freddie announced that borrowers without full replacement coverage would face negative consequences.
“Presumably, [that would mean] insurance companies would not be able to offer those coverages,” he said. “but we are paying attention to it for sure.”
At this point, there’s no guarantee that Boyd’s bill will be enacted this year, or even come up for a vote before the full Legislature before the session ends on March 11. So far, no member of the state House of Representatives has filed a similar bill, which would have to be passed in that chamber before the measure could advance to the full Legislature.
Many insurers offering ‘option’
But some insurance companies have already sought and received authorization to offer depreciated roof coverage on an optional basis.
State Farm was approved by the Florida Office of Insurance Regulation in 2020 to offer what it called a “Roof Services Payment Schedule Endorsement” as an option to make its homeowners’ coverage more affordable. Since then, other companies started offering the same option to their own policyholders, including Heritage, Olympus, Southern Oak, Tower Hill, American Strategic, and Security First.
One of the nation’s largest insurers, Progressive Home, emailed agents in December to announce that its depreciated roof coverage endorsement would be automatically included as the default option in policy quotes.
Progressive owns several insurance companies operating in Florida, including American Strategic, ASI Preferred, ASI Assurance, Progressive Property Insurance, and ASI Home Insurance.
Progressive spokesman Jeff Sibel said in an email that the company expects agents to tell customers that they are not required to purchase the endorsement.
“However, if they choose Replacement Cost Coverage, for homes with roofs 11 years or older, a roof inspection must be done within 30 days to ensure the policy will meet our underwriting guidelines,” he said.
Kyle Ulrich, president and CEO of the Florida Association of Insurance Agents, said that none of the members he polled reported encountering depreciated coverage included as the default quote for multiperil homeowner insurance.
Dulce Suarez-Resnick, vice president of the Miami-based agency Accentria Insurance, said companies she works with have been careful about mentioning “that it is available to be quoted if the customer is interested and they get a discount.” That discount typically ranges from 6% to 12% off of the cost of a policy with full roof replacement coverage, she said.
But Nancy Dominguez, executive director of the Florida Association of Public Insurance Adjusters, said her office has fielded complaints from homeowners upset by the discovery they did not have full roof coverage.
Many policyholders, she said, simply ask their agent to find them the least expensive coverage option and “the agent says, ‘sign here, here and here’ and they sign it.”
More than ever, Dominguez said, insurance customers need to ask their agent questions and carefully read their policies to ensure they understand what coverages they have — and what they don’t have. Waiting until they need to file a claim can become an expensive mistake, she said.