Roof claims hitting a new high – and crisis – for insurance industry, experts say

The latest crisis in home insurance may be all about roof damage claims. In fact, the critical point may already be on top of us, so to speak.

“The bottom line is that the frequency of claims submitted for roof damage has skyrocketed,” said Stephen Poux, executive vice president of Risk Management with The Liberty Company Insurance Brokers.

State Farm reported a $1 billion increase in hail-related claims nationwide from 2021 to 2022. That may be an undercount because the total $30 billion in damage from convective storms that include hail in 2022 doubled to $60 billion last year, according to the Insurance Information Institute. Inflation and supply chain disruptions, meanwhile, have made repairs more expensive, contributing to an average increase of around $2,000 per claim, III says.

“Insurers are looking at this as the next new flood issue,” said Poux.

Texas near top of roof-claim list

Not surprisingly, claims for roof damage have occurred most often and expensively in areas that experience severe weather conditions, such as hailstorms, hurricanes, and intense winter weather. Some of the most impacted regions include Texas, which consistently ranks as one of the most expensive states for roof damage claims due to frequent hailstorms. In 2022, Texas experienced more than $500 million in hail-related claims.

The Midwest states of Minnesota, Arkansas, and Nebraska also see frequent hailstorms, leading to insurance claims topping $799 million in 2022 claims. Roof repair or replacement claims have also substantially increased in Florida and areas of the Northeast, which have become more susceptible to damaging hailstorms.

In short, damaging weather is occurring everywhere and unpredictably.

“We're seeing traditionally an area from Texas and Oklahoma into Arkansas, the tornado alley, has really grown and expanded to include convective storms in the southeast, and the northeast,” Poux said. “The number two state last year for convective storms was Illinois.”

Depreciated costs, higher deductibles

With more frequent extreme weather across the country, some insurance companies are no longer paying full replacement costs for roofs that were installed 10 or 15 years ago. Instead, they're paying the depreciated, actual cost of the roof instead of the cost for a new one— or they're requiring a higher deductible to shift costs to homeowners, among other changes. Some are offering a discount for hail-resistant roofs or imposing a surcharge for roofs that are not hail resistant to encourage people to replace old roofs with new, more damage-resistant ones.

“Carriers are starting to tighten up when it comes to the claims submission process,” said Diane Delaney, executive director of the Private Risk Management Association. “I think we're going to start to see carriers putting new parameters that they’ve got to be submitted within 365 days. And then they're going to put minimums around the size of the hail and the event that was happening. They’re going to try and tie it back to the specific date that the storm happened to be able to track back what size that hail was.”

But it’s not just storms and inflation that are driving the frequency and expense of roof claims. It’s fraud.

“I consistently hear carriers saying something has to happen with the amount of claims that are coming in that are not correct or supposed to be happening,” said Delaney. “It’s because some are fraud-based because contractors are pushing them, and the carriers are spending a lot of money in litigation or lawsuits to fight those claims.”

Fraudulent roof claims cited

The Coalition Against Insurance Fraud reports that property-related insurance fraud, including roof damage claims, costs insurers billions each year. Fraudulent roof claims contribute to rising premiums, as insurers pass on the costs of these false claims to policyholders.

While roof-related fraud isn't the most common form of insurance fraud, it has become increasingly costly and widespread, particularly in regions prone to severe weather. People in those areas are well acquainted with “storm chasers” who go door-to-door to encourage homeowners to file inflated claims or may submit fraudulent estimates. They often target vulnerable or unaware homeowners.

“A broker in New Jersey shared a story with me about a client who called and wanted to submit a claim for a new roof,” said Delaney. “When she was asked why, the woman said a contractor repairing a fence on her property told her she could submit a claim for a new roof, and he’d show her how. These are the challenges we’re up against.”

Some homeowners or contractors exaggerate the extent of roof damage caused by a storm. They may claim that minor damage, like a few missing shingles, requires a full roof replacement, leading to much higher insurance payouts. In some cases, homeowners try to file claims for roof damage that existed before the insured event, such as an old leak or wear and tear, which would not be covered under standard policies.

Insurers are increasingly using technology and analytics to detect fraud, such as drones and AI to assess roof damage and compare it against weather data. Some states have passed laws aimed at curbing roof fraud, such as Florida, where insurance fraud related to roofing repairs has been particularly rampant due to frequent hurricanes.

Some states require fortified roofs

States are also passing laws or implementing building codes requiring homeowners to fortify their roofs to reduce damage and protect their homes.

Several states, particularly those prone to hurricanes and severe weather, have passed laws or implemented building codes that require homeowners to fortify their roofs to reduce damage and protect homes. Florida now has some of the strictest building codes in the country that require roofs to meet specific wind resistance standards.

Texas doesn't mandate fortification for all homes, but some municipalities have adopted stricter building codes that encourage or require impact-resistant roofing materials, especially in coastal areas. Insurance companies often offer discounts to homeowners who fortify their roofs. South Carolina passed laws that encourage homeowners to upgrade to stronger roofing systems, offering grants to homeowners who install wind-resistant materials and systems.

Alabama has been a leader in the adoption of the Fortified Roof Standard, developed by the Insurance Institute for Business & Home Safety. This program requires specific roofing materials and installation methods to improve durability and reduce damage from severe weather events. Homes built or retrofitted under this program are eligible for lower insurance premiums.

“The severity and unpredictability of storms, as well as inflation, are driving this massive crisis,”  said Delaney. “But it’s also these contractor-driven claims. “A lot of the claims are legit, but their carriers are spending a lot of money in the courts trying to fight claims that are fraudulent, and all that gets passed down to the premiums of the clients, and it's going to start raising everyone's premiums in general, which is already getting higher because of what's been happening across the country.”

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].