Every summer here on the Front Range, we see the news reports for tornadoes, wind and hail storms, flash floods, lightning strikes, micro bursts and so on….let’s face it, weather here in Colorado is harsh.  This is why most of us carry homeowners insurance – to protect our property in the event we are on the receiving end of one of these storms.

As the owner of Premier Roofing Company in Denver, CO, I can tell you that these days our business relies heavily on this type of storm damage to maintain production levels.  While a large portion of the local roofing industry has dried-up due to the current economic doldrums, Premier Roofing has maintained a solid book of business as we are able to fill the voids in our commercial and new construction revenues with re-roofs generated by good-old acts of Nature.  Last year, when the largest hail storms to hit Colorado in 20+ years pelted the Denver Metro Area, I called it “Mother Nature’s Bail-out.”  We were able to stay in business and actually grow our company as many of our colleagues in the construction industry continued to falter and fold- victims of a sluggish credit market and low demand.

Now that much of the work has been completed from last year’s hail storms (claims totaled at the 2nd highest level in Colorado history at over $500MM), it appears that homeowners insurance carriers are cutting their losses in this market by increasing deductibles, lowering payouts, raising premiums and canceling policies.  Needless to say, I find it depressing when insurance carriers change policies for thousands of Colorado homeowners in the wake of an uncommon disaster like last year’s hail and wind storms.  Many homeowners fail to pay attention to the weekly updates they receive in the mail from their insurers informing them of changes in coverage, rate/deductible increases etc.   As most of us are too busy to shop our insurance policy around, we typically concede to the changes heaped on us by our insurers to avoid the hassle of finding a new insurance provider.

While insurers typically reward their longest-term, lowest risk customers with the best coverage at the best price, many Colorado residents with no history of claims are seeing rate and deductible increases in spite of the fact that they never filed a claim on their policy.  Worse yet, many homeowners are receiving notification via mail that they must agree to a higher deductible or limited/downgraded coverage or face cancellation of their policy.  I know this because many of our customers who have come to us with their insurance claims this year are finding their insurance proceeds have been whittled down by larger deductibles or non-recoverable depreciation. Many insured homeowners prefer to maintain or lower their premiums (especially these days) so the specter of a higher deductible is often less intimidating than premium increases, gaps in insurance coverage or the hassle of finding a new insurance provider.

Increasing the amount of a deductible, though it may seem innocuous to anyone who has never filed an insurance claim, is a pretty big deal.  You should never allow a deductible to exceed your financial abilities.  An insurance policy is not meant to be a gamble but local insurance providers- in order to maintain their ratings with national insurance companies are pushing higher and higher deductibles and lower coverage on their customers to maintain their premiums and competitive pricing.   When facing rate increases, many homeowners’ knee-jerk reaction is to select a policy with esoteric limitations such as actual cash value (ACV) with non-recoverable depreciation, 1% deductibles, no code upgrade coverage or various riders or endorsements limiting coverage for the highest risk scenarios (storm or flood damage) just in time for one of Colorado’s damaging storms.  When this happens they are left high and dry with insurance proceeds that don’t nearly cover the cost of the repairs.

Take a recent customer of mine- we’ll call her Mary from Westminster, CO who 2 weeks ago contacted my company for a roof replacement.  Her insurance company in the last year enacted a policy which would not allow her to recover her full depreciation in the event of a claim.  Since she has a 10-year-old roof on her home which was damaged in a recent hail storm, her net claim after her $2,500 deductible and 50% non-recoverable depreciation was only $2,609 instead of $10,279: her insurer’s estimate for replacement cost.  We are diligently working with this homeowner and her adjuster to increase the payout of her claim, but we can’t promise her anything- she agreed to the policy when they set her premiums.

I know many homeowners fail to take into account- especially if they’ve never had a hail or wind claim- how much repairs to a home can cost and how important it is to have a manageable deductible and a Replacement Cost Value (RCV) endorsement on their insurance policies.  If Mary had this on her policy- it might have cost her a few hundred dollars more every year in premiums, but now she’s faced with the burden of almost $8,000 to repair her home and I’m sure she will settle on a low-cost, high-risk contractor to complete the repairs as she has not budgeted for this expense.

When selecting a homeowners insurance policy on the Front Range, make sure you take the following aspects of your policy into account:

Deductible: Your deductible is the amount of money that is subtracted from your insurance claim payout.  It is your out-of-pocket cost on every insurance claim.  Make sure your deductible is a manageable price.  In the event of a claim- you should have the funds available to pay your deductible without putting you in a financial bind.  If you choose a high deductible to keep your rates down, you could end up paying for a claim for years to come.

Recoverable Depreciation: If your property is damaged during a storm, your insurer will take into account the amount of value your damaged property has lost due to age (depreciation).  Today, most homeowners have recoverable depreciation which bridges the gap between the value of the loss and the cost of the repairs.  If you do not have recoverable depreciation you will only be reimbursed for the value of your lost property, not the cost to replace it.  Make sure you have the recoverable depreciation endorsement on your homeowners policy so you are covered for the entire cost of repairs on your property.

Code Upgrade Coverage: We see more and more customers every year without this endorsement on their policy which can be quite costly in the event of a claim.  The existing roof on your property may have been installed months or decades ago.  If the municipality or county where your home is located changes its codes to require more expensive roofing products, you will need this endorsement to avoid additional costs in the event of a claim.  For example:  You must install new roof sheathing on your house because the Douglas County has determined the existing roof sheathing is out of code and your property will fail inspection without a full sheathing replacement.  If you do not have code upgrade coverage- your insurer will not reimburse you for this added expense and you are now faced with $1,000s in additional expenses on top of your deductible.

Obviously I have quite a bit of skin in the game when I recommend Colorado homeowners maintain low deductibles and RCV policies.  Greater payouts from insurers invariably mean greater payouts to Premier Roofing, but the burden is shared by both Premier Roofing and our customers when coverage is limited or missing.  If you are a homeowner on the Front Range, make sure you pay attention to those letters coming in the mail from your insurance company and don’t sign off on any changes in coverage to maintain a low premium without giving it serious consideration- the next storm may be on the horizon.