Farmers Ins. Re-Enters D/FW Marketplace
ACV Roof Endorsement Offered to New Homeowners

By Andrea Ortega

  Commissioner Elton Bomer has announced an agreement with Farmers Insurance Group to offer residential property insurance in the Dallas-Fort Worth area with an actual cash value endorsement for roofs, instead of the standard replacement cost policy. Farmers has not offered new homeowners or dwelling fire coverage in the area for over three years because of huge hailstorm losses in 1995.

  The ACV endorsement on roofs will open up a new market for many Texas homeowners who have been struggling with high premiums due to excessive roof losses. Texas is one of the last states to offer actual cash value endorsements for roofs.

  "We see the endorsement as addressing the availability concern for consumers," Mark Toohey, Farmers spokesman, said. "It gives a choice to consumers and people who opt for the coverage will get a discount that ranges from 10 to 16 percent, depending on the coverage."

  Bomer held a hearing on April 9 in which many Farmers agents testified that actual cash value for roofs would increase the availability of homeowners insurance. Agents said that ACV endorsements would allow them to re-enter the D/FW marketplace and reduce high premiums.

  Toohey said there are 650 Farmers agents in the Dallas-Fort Worth area, and the actual cash value on roofs will be helpful to agents by reopening an important line of business. The effective date for the endorsement was set for May 15.

  Bomer said the actual cash value endorsement must have a reasonable premium credit. Also, several limitations are included with the endorsement.

• Farmers can add the endorsement only to newly issued policies. Farmers cannot add the endorsement to existing policies, unless requested by the policyholder.
• The deductible on policies with the actual cash value endorsement may be no higher than 1 percent.
• Roofs would not be depreciated more than 50 percent.
• Farmers must provide an adequate disclosure to the policyholder regarding the difference between actual cash value and replacement cost.

  "While this new endorsement will hopefully increase the availability of insurance in hard-hit areas, consumers should know that much of the financial responsibility for replacing an older roof would be placed on them," Bomer said. "Homeowners who prefer the standard replacement policy should shop around before accepting an actual cash value endorsement."

  Not everyone is thrilled about the actual cash value endorsement for roofs. Some consumer advocates have criticized the deal noting that consumers who most likely will take the ACV policy cannot afford to take the higher risk of loss. But instead, have no other choice or are low-income homeowners who cannot afford replacement cost coverage. Even with a 50 percent maximum depreciation for a roof, a consumer would be unable to afford the $3,000 to $4,000 cost they would have to pay for a roof replacement under the ACV endorsement.