Top 6 Factors Affecting Insurance Coverage on Your Roof

Insurance can be a lifesaver. Whether it's health insurance, auto insurance, or - yes - commercial roof insurance, it can save you anywhere from hundreds to hundreds of thousands of dollars. 
Sadly, it can also be a nightmare. Policies can be hard to read and understand, and some companies may be stingy with claims, doing everything they can to pay as little as possible or avoid paying altogether. Instead of being there when you need them, they can leave you with a devastating bill. 

At GIDEON, we've been working with commercial roof insurance claims for two decades, and we've seen all the problems building owners may encounter when filing a claim on their roof. 

In this article, we'll discuss the factors that affect your coverage so that you can make the right choice, whether you're updating an existing policy or shopping for a new one.

The Importance of A Good Broker or Agent

Unfortunately, insurance in any industry is rarely straightforward, and this also applies to the roofing world. While roof coverage can be included in your commercial property insurance policy, insurers sometimes exclude flat roofs due to their susceptibility to weather damage. When your roof is covered, it may be subject to various restrictions or exclusions. Discussing your policy coverage in detail with your broker or agent is critical so you're not blindsided when you file a claim. 

We recommend working with a broker who can shop for an insurance agency that best fits your specific business needs. While you can get a good policy from a big, brand-name insurance company, they're not the best for everyone. A good broker can help you find an agency that specializes in mitigating risk for your specific kind of business; this can help you get lower premiums and better coverage.

Factors Affecting Your Coverage

Replacement Cost Value (RCV) vs. Actual Cash Value (ACV)

The two primary distinctions among roof insurance policies are Replacement Cost Value policies and Actual Cash Value policies. 

RCV policies will cover the total cost of replacing your roof with like and kind materials. In an RCV policy, insurance pays the ACV (the replacement cost of the roof minus the depreciation), then pays out the depreciation when the job is completed and the contractor submits an invoice.

In contrast, the payout on an ACV policy is based on the roof's age at the time the damage is incurred. The amount of your claim is calculated by subtracting depreciation from the replacement cost - meaning you'll pay out of pocket for the remainder.

Many people end up with ACV policies because it gives them a lower premium and lower premiums are nice - until you have to file a claim. A customer once approached Eric, one of our founders, about a roof that had suffered major storm damage. While the roof replacement cost was $250,000, the customer's insurance company only covered $50,000 because the policy was ACV. Of that $50,000, the deductible was $10,000. This meant the customer had to pay $210,000 out of pocket. Given that the roof was 20 years old (nearly the end of its lifecycle), the insurance company's payout of $50,000 was actually generous. A different agency may have offered even less.

Roof Condition & Age

Generally, the newer and healthier your roof, the better your coverage and the lower your premiums. The older and more worn out your roof is, the more likely the insurance company is either to exclude it from coverage or to cover it with exclusions or restrictions.

Let's take the previous example of the customer with an ACV policy. Let's suppose before the storm occurred, he considered upgrading his policy to RCV. This would have been difficult because his roof was near the end of its service life. Could he have done anything to upgrade his policy short of tearing off and replacing the entire roof? 

The answer is yes. If your roof is old but still in good working condition, we recommend getting any necessary maintenance done, pressure washing it (this will remove years of grime and make the roof look much younger), and then getting an elastomeric coating applied by a qualified contractor. This will protect the underlying roof, stop the aging process, give you a brand-new warranty, and extend the service life by 15-20 years.
 
If this is done, insurance companies will, in the vast majority of cases, give you an excellent RCV policy and may even lower your premiums.  

Type of Roofing Material

Different roofing materials have different lifespans and different capacities to withstand the onslaught of the elements. More durable materials with better fire ratings, hail ratings, wind resistance, and other factors will likely qualify for better coverage and lower premiums. 

For example, since hail is the most common cause of insurable roof damage, materials with a Class IV impact rating will qualify you for excellent coverage and a discount of around 5% on premiums.

Geographic Location

Some locations are more prone to severe weather than others. You may be subject to higher premiums or specific restrictions if you are in a "high-risk location" that frequently sees hurricanes, tornadoes, hail, or wildfires.

If you're in a high-risk area for hail, a good way to get an excellent policy and a premium discount is to ensure the materials have a Class IV impact rating. In the US, the areas most prone to hail storms are in the Midwest, Mountain West, and Southwest. A particularly high risk region known as “hail alley” covers South Dakota, Wyoming, Colorado, Nebraska, Kansas, Oklahoma, and Texas. The highest risk for hail occurs on the Rocky Mountains’ Front Range, covering Colorado Springs, Denver, Fort Collins, as well as western Nebraska and South Dakota.

If you're in an area prone to hurricanes, like the Gulf Coast, wind-vented single-ply systems are an excellent way to achieve a high wind rating.

Building Use

Certain types of buildings are considered higher risk due to the nature of their use. Certain types of manufacturing, for instance, are considered more dangerous to the building and may result in higher premiums or exclusions.

Additions or Repair Work

If you update the roof, you should discuss it with your insurer to determine if the updates are covered under your existing policy or if you need additional coverage. Additions may also raise your premiums. If you built an elevated structure, a penthouse, or a loft of some kind, you've increased the value of that property, and it needs to be assessed for risk. This will only apply, however, when you've made significant changes. There's no need to report regular maintenance. 

Certain additions may lower premiums. A roof coating system - which will stop the roof’s aging process and extend its life by up to 20 years - may qualify you for a better policy.

The Upshot

Problems with insurance are so common it's practically a cliche. Outside healthcare, there are few areas where a lack of insurance coverage can be more costly than commercial roofing, where hundreds of thousands - even, in some cases, millions - of dollars are at stake. Now that you've learned the most important factors in choosing or upgrading your insurance policy, schedule a call with GIDEON. In a free, 15-30 minute call, our nationally-recognized advisors can assess your situation and provide customized advice for your roof.