After several record hurricane seasons, 20 percent of homes on the Alabama coast are without any wind insurance, according to Carl Schneider, owner of Schneider Insurance Agency Inc., Mobile, Ala., and member of Alabama's Affordable Homeowner's Insurance Commission. This lack of insurance is becoming more common—and problematic—as insurance companies adjust their risk models to account for increased potential payouts caused by changing weather patterns. As storms become more frequent and severe, the new models translate into staggering rate increases or companies' unwillingness to write policies in U.S. coastal areas.
Storms are expensive
The four largest insurance companies—Alfa Insurance,® Allstate® Insurance Co., Nationwide® Mutual Insurance Co. and State Farm Insurance®—have cancelled 50,000 policies in coastal Alabama, Schneider says. When the next storm comes through, homeowners without insurance will be hard-pressed to afford repairs caused by the storm—and that's bad news for your roofing business.
Unfortunately, coastal Alabama isn't the only area affected. Changing weather patterns have led to increasing numbers of tornadoes, hurricanes and earthquakes across the U.S. These storms result in an overwhelming number of homeowner's insurance claims, leaving many insurance companies to cut costs and drop policies.
Although a high number of storm claims typically would be good news for your roofing business, you should be concerned about the difficulty some homeowners face obtaining insurance.
"It is becoming increasingly harder and more expensive to obtain homeowner's insurance," says Paul Berger, attorney and founder of Hurricane Law Group,™ Coral Gables, Fla. "Why? Insurance company profits. In an effort to boost or protect bottom lines, insurance carriers are undertaking an effort to shed or not renew high-risk policies and no longer are offering new policies to homeowners they deem high risks or who live in high-risk areas. Thus, across the nation, insurance is becoming more expensive and harder to purchase."
The problems are widespread: After Hurricane Katrina hit in 2005, State Farm Insurance ceased writing new policies in Mississippi as a result of multiple lawsuits from coastal customers unhappy with their coverages. Also following Hurricane Katrina, Mississippi Farm Bureau Insurance Co., Jackson, a leading insurance agency in the state, became insolvent.
But coastal areas aren't the only ones addressing a lack of insurance accessibility and affordability. First, weather patterns indicate coastal storms don't just affect coastal properties. Hurricane Ivan, for instance, went inland and caused millions of dollars in damage to Ohio and other inland states, Schneider says. Additionally, various parts of the U.S. experience other natural disasters, such as tornadoes and earthquakes, which are occurring more frequently, according to the Environmental Protection Agency and United Nations' World Meteorological Organization.
When storms hit, local economies suffer—and you may find there is no one to pay you for the needed repairs and replacements.
"Those who are uninsured or underinsured, with deductibles of 4 or 5 percent, won't be able to pay for repairs, and banks will have to foreclose on the damaged homes," Schneider says.
Why it's disappearing
According to the National Weather Service, in 2011 there were 12 natural disasters, each of which caused more than $1 billion in damage. These disasters include the Groundhog Day blizzard, Southern Plains/Southwest drought, Mississippi River flooding and Hurricane Irene.
"As weather wreaks havoc across the U.S., insurance rates increase and policies in high-risk areas are dropped in response," Berger says. "In other words, insurance carriers use disasters as a way to raise premiums and shred policies. This combination maximizes insurance carrier profits over time."
This strategy works well for insurance carriers. Berger says the proof is that "despite the billions in damages that were paid out in 2011, most carriers [experienced] record profits. As a reminder, most policies never result in claims, but disasters allow carriers to make widespread premium increases and give them the ability to drop policies."
These premium increases are permanent gains for insurance carriers and further contribute to their bottom lines.
"All homeowners along the Gulf Coast, from Louisiana to Florida, saw insurance premiums increase by astronomical amounts as a result of the 2004 and 2005 hurricanes," Berger says. "Although carriers paid billions in damage during those years, they now are reaping record profits [because] the South has largely remained hurricane-free."
As disasters become increasingly more frequent and costly across the U.S., Berger expects to continue seeing premium increases and nonrenewals in high-risk areas.
In addition to natural disasters, new technologies also are helping carriers avoid insuring high-risk policyholders, Berger says.
For instance, databases such as C.L.U.E. (Comprehensive Loss Underwriting Exchange), created by ChoicePoint Inc., now owned by Atlanta-based LexisNexis,™ enable insurance companies to access consumer claims information when they underwrite or rate an insurance policy.
"In essence, carriers are freely sharing information about policyholders so risk may be avoided," Berger says.
Legislators tackle the issue
Fortunately, some state governments have recognized home insurance is becoming less affordable and accessible and have begun addressing the issue. To encourage more insurance companies to insure at-risk properties, some states are encouraging homeowners to better fortify their homes to resist damage from storms.
For instance, in South Carolina, the Omnibus Coastal Property Insurance Reform Act of 2007 established a grant program for homeowners to help them strengthen their properties and make them more resistant to the high winds associated with hurricanes and severe wind storms. In addition, the South Carolina legislature instituted tax-free Catastrophe Savings Accounts, which consumers may set up to cover the cost of their insurance deductibles in the event of property damage from a weather-related catastrophe.
Alabama, Florida and Mississippi are working on similar programs to make homeowner's insurance more readily available and affordable. The Coastal Alabama Leadership Council (CALC), formed by local businesspeople and government leaders to rebuild the coastal economy following the BP oil spill in 2010, developed a report addressing the problems of obtaining affordable homeowner's insurance and provided it to Alabama Gov. Robert Bentley (R) in early 2011.
In response, Bentley formed the Affordable Homeowner's Insurance Commission, which is charged with educating the state's consumers about the issues surrounding the insurance market and developing a bill package to bring to the legislature that will address risk mitigation, insurance company incentives, building code changes and litigation. The group has hosted five public forums across the state to educate consumers and is working to develop potential legislation.
As a result of the Affordable Homeowner's Insurance Commission's work and cooperation from the state's Department of Insurance, three new insurance companies have begun doing business in the state and three more have committed to coming to Alabama, Schneider says.
In addition to educating the public, the Alabama commission also is working to educate state legislators about insurance issues. In August 2011, the group led a delegation of state leaders on a trip to Chester County, S.C., to visit the Insurance Institute for Business and Home Safety's (IBHS') Research Center. There, the group watched a water intrusion system demonstration, which showed how specially fortified roof systems can protect homes from wind and water damage.
"That demonstration changed a lot of minds," Schneider says. "The [legislators] now see how stronger codes and better roof systems are keys to preventing damage."
Getting homeowners involved
To help broaden the insurance options available in your local communities, your roofing company can join community groups such as CALC, which may be lobbying for legislative changes. But the most important way to help the cause is by learning how to install more resilient roof systems and educating your clients, Schneider says.
"Roofing professionals can show their clients how spending a little more money will make a big difference in creating a stronger home, and in many cases, clients with stronger homes can get insurance discounts," he says. "Everything starts with the roof. When we talk about mitigating risk, the roof is No. 1."
The most important thing a homeowner can do to prevent insurance cancellation is to "take steps to protect the home against the major natural hazard that is likely to impact that property, whether it is windstorms, severe winter weather, wildfire, earthquake, hurricane or hail risk," says Julie Rochman, president and chief executive officer of IBHS.
When evaluating a home's durability, insurance companies consider a home's ability to withstand whatever natural or manmade risks likely are in the home's location, Rochman says.
"The better the risk, the more attractive a property is to insurers," she says.
IBHS provides general engineering guidance for improving building features such as installing fire- or wind-resistant roof systems, reinforcing gable ends or garage doors, making sure interior furnishings do not cause injury in earthquake-prone areas, and keeping wind-driven water from leaking in or around windows.
Also, let your customers know several insurance companies provide incentives to policyholders whose properties meet increased standards, such as those IBHS suggests. In some cases, those incentives can cut premiums almost in half, according to Darius Grimes, founder of Disaster-Smart™ Inspection Consulting, Cantonment, Fla.
Building stronger roof systems won't just allow your customers to save money, it also may allow them to maintain coverage and ultimately keep your company in business.
Nancy Mann Jackson is a freelance writer based in Huntsville, Ala.
Did you know?
NRCA and IBHS have partnered to educate roofing contractors and consumers about impact-resistant, steep-slope roof systems and have created the following online programs, which are available at www.nrca.net.
For roofing professionals
Impact-resistant Roofs: Contractor Certificate Program consists of five self-paced learning modules and a comprehensive final exam. It builds basic competencies for identifying, selecting, installing and selling impact-resistant roofing products.
For homeowners
Impact-resistant Roofs: Smart Steps to Reduce Hailstorm Damage: Why Impact-resistant Roofs? An Introduction provides your clients with valuable background information about hail damage.
Impact-resistant Roofs: Smart Steps to Reduce Hailstorm Damage: Steep-slope Roof System Basics will enhance your clients' abilities to discuss roofing materials and systems with roofing contractors.
Impact-resistant Roofs: Smart Steps to Reduce Hailstorm Damage: Impact-resistant Products, Ratings & Building Codes explores how impact-resistant products are tested and rated. Residential roofing warranties also are addressed.
Impact-resistant Roofs: Smart Steps to Reduce Hailstorm Damage: Impact-resistant Roofs: Making Decisions provides your clients with clear and objective information that supports their decisions about whether to install an impact-resistant roof system.
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