As a regional roofing contractor that has completed 1000s of insurance restoration projects over the years, Premier Roofing Company estimators and field representatives are asked regularly by customers whether it is possible for us to “cover the deductible” on an insurance claim for roof repairs.This puts our representatives in a difficult and awkward position because there are no great answers to give a homeowner. Homeowners are often approached by seemingly legitimate contractors and told it is “perfectly legal” to cover a deductible on insurance repairs. Some roofers make it such a common practice; they openly advertise “Free Roof” on yard signs and door hangers. No one wants to be told they’re lying, cheating or committing some kind of crime for asking what seems to be a perfectly reasonable question. All we can do is explain the insurance claim process and let homeowners determine for themselves what is a legal and ethical business practice.

As we rack up years in this industry, we see a disconcerting trend of contractors trading deductibles for repair work and it puts us in a tough spot. Do we compromise on our ethics and cut our costs by using cheaper labor and materials, or do we spend the time to educate our customers on the insurance claim process, our roof system, and the importance of using a stable contractor- a process that can take hours longer than simply chopping our price and “getting it over with.”

I recently brought my truck to the body shop to get some estimates on paint and dent repairs. I carry a pretty high deductible and the repairs would likely not have cost much more than $2,000. As I stood at the counter waiting for the secretary to process my estimate, I asked her (tongue in cheek) “So any wiggle room on this deductible of mine?” She didn’t even look away from the computer as she had clearly been asked this several times. “Nope” was her reply. I then asked “What if this was$7,000 worth of body work? I bet I could take my business elsewhere and get a deal.” Her reply was startling: “Well if you wanted your paint to peel off in 6 months, you could definitely do that.”

I was frustrated by the exchange, not because I didn’t like her answer and wanted a “better deal,” but because things are so different in our industry. For some reason, customers are more willing to take a chance on a cheap roofing contractor than a cheap body shop, which is nuts when you consider thatwe’re working on something a lot more expensive than a car (your home) and our installers are doing some of the most dangerous work in the construction industry. On top of that, you read stories about homeowners getting ripped off every year by roofers offering a “great deal” that subsequently close their doors after collecting $1,000s in insurance proceeds.

In the end, it’s just what the roofing industry has become: small contractors with low overheads providing shoddy work, cheap materials and kicking back money to customers because they can’t provide a service that is worth the meager insurance proceeds they are collecting. Throw in the fact that it’s illegal to siphon money from an insurance claim to the homeowner and it becomes clear why80% of roofing contractors are out of business within 2 ½ years (2008 BBB).

In the past, “absorbing” an insurance deductible would have been perfectly legitimate for a roofing contractor. As recently as 15 years ago, homeowners were given lump sum payments by their insurers when a loss occurred; the deductible was simply removed from that total. In fact, it was not only legal for the homeowner to keep the deductible; it was entirely up to the consumer whether the repairs had to be completed at all. For example: a wind storm hit a home, an insurance adjuster was dispatched and determined it would cost $10,000 to fix the damages to the roof. The homeowner’s deductible was $1,000, so the insurer cut a check for $9,000 and the homeowner decided what to do with the money. In other words, they could have given a contractor any sum of money, be it $500 for minor roof repairs,or all of the insurance proceeds plus the deductible to replace the roof.

Today insurance claims work differently. As most homeowners have Replacement Cost Value (RCV) provisions in their insurance policies, insurers have limited their exposure to RCV insurance claims by breaking down payments into multiple parts. Today, instead of receiving a lump-sum payment for work to be completed, funds for a roof replacement can come in as many as 4 separate checks and will often bear the name of the mortgagee of the property as a cosigner. The only way to get all of the money from an insurance claim today is for a licensed contractor to actually bill the insurance company AND the mortgage company (if there is a mortgage on the property) for the completed work. For example:
a hail storm hits a home, the homeowner files an insurance claim and a claims adjuster is dispatched to the location. The adjuster determines it will cost $10,000 to complete the repairs. There is a $1,000 deductible, so that is subtracted from the estimate. The roof isn’t brand new, so that depreciation (let’s say $5,000 for the sake of round numbers) is also subtracted from the estimate. Now the insured is given a primary check for $4,000 instead of $9,000. The remaining $5,000 worth of depreciation is only recoverable when an invoice of $10,000 or greater is received from a roofing contractor or general contractor (a homeowner can’t bill for the work without an invoice) and that check is made out to the mortgage company listed on the property.

So how is it that roofing contractors are “waiving” deductibles? Well, in the simplest of terms, they’re fibbing to the insurance and mortgage companies. A homeowner’s insurance policy is a contract between the homeowner and the insurance company. Per this contract, homeowners trade annual premiums in exchange for protection from catastrophic damages to their properties minus a deductible. Just as you would have the legal protection if your insurance carrier were in breach of contract and refused to pay a claim, your insurer has legal protection from you if you fail to meet your obligations (i.e. you or your contractor provide inaccurate information to save on your deductible or premiums). Many contractors will advertise that a yard sign can be used as an “advertising credit” for the deductible amount. If they are planning to invoice for the full insurance claim, they must divulge in their invoice to the insurer the cost of work to be provided on the project. If they are charging the insurance provider $10,000 for work they actually do for $9,000, the roofer is inflating the price for goods sold to account for this discrepancy. Insurers would balk at the notion of subsidizing advertising for contractors…if they knew about it of course.

If an insurance company knows the work is being completed for less, they will provide less money. For example: If the insurer finds out that the homeowner was able to complete the work for $9,000 instead of $10,000, they would only release $8,000 total instead of $9,000- again forcing the insured to pay the $1,000 deductible to the contractor. Long story short- the discrepancy between the price billed to the insurer and the price billed to the homeowner is technically a breach of contract between the insured and the insurer- regardless of whether it was facilitated by a contractor.

Some roofers will argue that it is entirely up to the contractor to decide what they are doing to get the work. If they want to pay a customer $1,000 to get their business, they should be allowed to do that regardless of whether an insurer is involved because the market should dictate what the acquisition cost of a customer should be. If the contractor is literally cutting a check back to the homeowner for “advertising” technically this would require that a Form-1099 be issued to the homeowner as the Federal Government requires transactions greater than $600 to be declared and for the homeowner to pay income tax on that transaction. I doubt contractors that cut checks back to homeowners a recollecting Social Security numbers and properly filing their taxes for them- leaving another important detail out of the conversation.

Whether this is a crime for which homeowners or restoration contractors are likely to get caught is an entirely different argument as I wouldn’t recommend trying it either way. It strikes me as sketchy at best to falsify information you give your insurance company or to work with someone offering to do it for you. How many legitimate companies have at the center of their business model a plan to provide misleading information to the party cutting the checks?

By the same token, I can see why it happens so often: If I were new to the insurance claim process and a seemingly legitimate restoration contractor offered to absorb my deductible, I wouldn’t think for a minute that I could be in breach of contract.

In the end, if your insurer were to catch you or your contractor, my guess is that your contractor wouldn’t take all of the blame. So be cautious with contractors like these, they may be cutting corners on your project, or worse yet, putting your name on a falsified invoice they provide to your insurer.In the end, the old adage: “If it sounds too good to be true- it is,” explains everything better than I can, so be sure to do your research and choose a company with a long track record of customer satisfaction. Don’t let your guard down; check references, never give money to a contractor before the materials show up, and make sure you’re not getting put in a situation where you may be breaking the law just to get a “better deal.”

Chris Tulp is the Principal of Premier Roofing Company in Denver, Colorado. To learn more about Premier Roofing please visit www.premier-roofing.com.

To learn more about insurance laws- go to http://www.dora.state.co.us/insurance/.

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.

It’s already August and the Colorado summer seems to be whizzing by just like it does every year.  Before we know it, we’ll be shopping the back-to-school specials in the paper, buying soccer and football cleats for our kids, and all of our home-improvement plans we had for this summer will be put off yet again until next year.

As co-owner of Premier Roofing Company, I can tell you that every year we have an influx of business in the months of September and October as all of our customers finally pull the trigger on their home improvement decisions.  I call it “the Fall Rush,” and I wish I could get my customers to make their decisions sooner, but I understand- I’m one of the worst procrastinators I know.

The problem with putting off the installation of a new roof is that roofing materials, in particular asphalt shingles (our most popular product) get more and more expensive every year.  Just last month I received yet another notice that I was facing greater than 5% increases in price from my suppliers on my most common commodities- asphalt shingles and asphalt underlayment (felt and ice/water shield).  Now, this may not sound like a big deal, but we have seen increases like this almost semi-annually for the last few years.  Our average invoice for a roof replacement has increased almost 33% since 2005 while inflation and the cost of labor have increased by negligible percentages comparatively.

There are many factors that contribute to the rise in cost of asphalt-based roofing products.  The most obvious and greatest contributor to this rise is the increase in the price of oil we witnessed a few years ago when oil spiked to $145/barrel.  Since then, oil has leveled off- dropping all the way to sub $40 levels in early 2009 and settling between $60 and $80 recently (http://www.nyse.tv/crude-oil-price-history.htm), but asphalt roofing prices have continued their steady rise in spite of the major shifts in the price of oil.

One major contributor to this steady rise in roofing prices is the decrease in the availability of asphalt.  90% of all asphalt is used for pavement while less than 10% is used in the roofing industry (Asphalt Institute).  As the economy stumbles and the home improvement and home building industries falter, one would assume that prices for asphalt shingles and other bituminous residential construction products would slide, but increased use of asphalt in transportation projects appears to have a much greater impact on the consumption of asphalt.

Every day on my way to work on I-25, I see signs for “The American Recovery and Reinvestment Act” showing our tax dollars at work.  According to www.recovery.gov, approximately $16.4 billion has been released by the Department of Transportation for reinvestment nationwide.  One can assume that a considerable percentage of this budget is being used by local governments to resurface and pave our roadways.  The impact of the current decline in home building and home improvement on asphalt prices pales in comparison to the steady demand for asphalt in pavement, especially with the recent increase in transportation projects courtesy of our federal government.

Another factor affecting asphalt prices is the increased efficiency of oil refining facilities to create higher-value products from oil.  Asphalt is essentially a by-product of the production of fuels from oil.  In 2007, measures were introduced by the federal government mandating efficiency increases in the production of fuels from oil.  While these mechanisms- often referred to as “cokers” used to manufacture the “Ultra Low Sulfur Fuels” we use today have become more effective, one of the results of the new refining process is a decrease in production of asphalt- further driving up the demand for the product.

The recession and housing collapse negatively affecting demand for roofing contractors throughout our state has done little to affect the costs we face as an industry.  Many homeowners choose to put off the replacement of their old roof with the hopes that they can get “1-5 more years out of it,” however, the economics of this decision are questionable.  In today’s market on the Front Range, an average roof replacement costs approximately $10,000.00.  An increase in price of 5-10% (which is very possible) can cost a prospective roofing customer $500-$1000 if they choose to put off their roofing project.

While the continuous increase in price for asphalt products has narrowed the gap in price with other roofing products (metal, synthetics, concrete, slate) there is no question that asphalt products continue to be the most efficient and cost-effective solution to the roofing needs of Colorado homeowners.  It will likely be well over a decade before a roof replacement with a different product can come close to the “bang for your buck” you get from an asphalt shingle roof.  A properly installed asphalt shingle roof designed to last 20-50 years will depreciate on that schedule.  At $10,000, you may only be saving approximately $200/year by waiting, and you could be risking potential price increases which are far greater than that.

So, fellow procrastinators and potential roof purchasers, before you put off that roof replacement for 1 more year, keep in mind the savings may not add up if you have the ability to purchase now.  And if you’re like me and you choose to put it off for another year, we Colorado roofers will do our best to keep the prices down for you, well, as much as possible.