Insurers are increasing their scrutiny of the age and condition of roofs in commercial buildings and introducing more restrictive terms under property policies, experts say.
Commercial buildings with older roofs that have not been updated and those located in regions prone to windstorms, severe convective storms and wildfires have insurance coverage for roof damage that is limited by policy provisions, they say.
And coverage restrictions have accelerated in the wake of numerous named wind storms, tornadoes and hail events in recent years, according to several brokers.
Properties located in South Florida’s three-county region, which includes Broward, Miami-Dade and Palm Beach counties, see the most restrictive coverage in insurance, said Jeff Buyze, Fort Lauderdale, Fla.-based national real estate industry 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. Initially, this applied to roofs that were more than 15 years old, but insurers now limit payouts to the actual cash value of buildings with roofs that are only five years old, he said.
The definition of roofing has also been broadened to include roofing, so any damage to wood decking falls under the roofing citation, he said.
“Imagine a 10,000-square-foot commercial real estate building. … The replacement cost-to-real cash value divide is quite often huge. You can be talking about hundreds of thousands of dollars,” Mr. Buyze said.
Occupancy classes that see more restrictive cap terms include residential accounts and public businesses, particularly municipalities and school districts, said Peter Fallon, national real estate 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 roof can withstand hail and wind damage, so insurers are saying, ‘We’ve got to do something,'” Fallon said. .
Tighter cap conditions affect both permitted and unrecognized risks, he said. “We see that in the standard market as well,” he said.
Changes tend to depend on the age of the roof, especially those more than 15 years old, Mr. Fallon. Where coverage is based on actual cash value, insurers may also impose a surcharge and a higher deductible, he said. Insurers may also add deductibles to reflect an additional exposure such as water damage, he said.
Underwriting review based on roofing materials is a focus in areas prone to windstorms, hail and wildfires, said Michael Korn, global property and marine leader at EPIC Insurance Brokers in San Francisco.
In the case of a wildfire, insurers worry that embers could travel miles from a wildfire and land on a combustible roof and start a fire in another area, Mr. Grain.
Many roofs on buildings in California are constructed of wood or shingles, he said.
Valuations are increasing to help cover the rising cost 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 per square foot for frame buildings. Nowadays, they’re up to $100 or $110 per square foot for frame buildings to offset some of those roof costs,” Mr. Doss said.
Variations in building codes in different states and problems with roofing contractors in some states can also affect the terms available, he said.
Valuations overall have become a rallying point for the market, particularly on roofs in high-risk zones that are subject to the whims of wind, rain and water damage, said Henry Daar, Chicago-based vice president and head of property claims at Willis Towers Watson PLC.
“Carriers don’t want to pay for the same thing two or three times,” Mr. There.
In the case of a roof that has previously been subject to loss but has not been repaired, insurers will either exclude existing unrepaired damage from coverage 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 pockmarks but is not determined to have caused a loss of structural integrity, he said.
Roofing claims can be costly and, based on the roof composition and building structure, can range anywhere from a $25,000 loss to a $5 million loss, Mr. There.