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Insurer to offer D-FW limited roof coverage

Consumer groups fear many will be unprotected

By Terrence Stutz / Austin Bureau of The Dallas Morning News
Published 04-30-1998

AUSTIN - Hail-damaged roofs would no longer be fully covered for a large number of homeowners in Dallas and Fort Worth under a far- reaching state order approved Wednesday.

State Insurance Commissioner Elton Bomer gave Farmers Insurance Group permission to sell homeowners policies that contain limited roof coverage in five Dallas-area counties.

Those counties are Dallas, Tarrant, Collin, Denton and Rockwall. All other counties in Texas will still have full replacement coverage for roofs.

Consumer groups criticized the order, saying it will leave too many Texans unprotected. Insurers disputed that, saying it should ease the tight insurance market in North Texas.

Mr. Bomer said he hopes the change will increase the availability of insurance, but stressed that those interested in the new policy "should know that much of the financial responsibility for replacing an older roof would be placed on them."

He said existing customers would have the option of keeping full replacement coverage or switching to the new limited coverage policy for a premium reduction between 10 percent and 16 percent.

But, Farmers officials said, new customers will not be given a choice. Other companies are expected to follow Farmers' lead and seek the commissioner's approval to sell policies with scaled-back roof coverage.

Mr. Bomer said he agreed to the Farmers proposal so that the company will begin selling new policies in the Dallas-Fort Worth area. Farmers has sharply limited homeowners policy sales since 1995, when a destructive hailstorm damaged thousands of roofs in the area.

"Homeowners who prefer the standard replacement policy should shop around before accepting an actual cash value endorsement," Mr. Bomer said.

Standard homeowners policies now sold in Texas include full replacement coverage for weather-damaged roofs regardless of their age.

Under the "actual cash value" option, Farmers will be able to sell policies that depreciate the roof based on its age and condition.

The homeowner would then be responsible for paying the difference between the depreciated value and the total cost of roof replacement.

A late change in the order issued by Mr. Bomer would limit depreciation of the roof to 50 percent. That means no homeowner would have to pay more than half the cost of replacement.

In addition, Farmers would have to explain to policyholders the differences between the two types of coverage.

Plano homeowner Ann Phillips said she has serious reservations about the change.

"I don't think it is right," she said in an interview. "Why should there be full replacement for your house and not your roof?

"I think it is wrong they are treating us different from homeowners in the rest of the state. It is like we are being punished because we live in North Texas."

Farmers officials said the change will allow the company to begin selling new policies in the area.

"We are looking forward to re-entering" the Dallas-area market, said Mark Toohey, a spokesman for Farmers, the second-largest writer of homeowners insurance in Texas.

Farmers officials have said the company was losing too much money under policies offering full replacement coverage.

Mr. Toohey said the company will resume selling policies in the five counties on May 15.

"The bottom line is this is good news for consumers in the Dallas- Fort Worth area because it will give them an additional choice when it comes to homeowners insurance," he said.

Picking the limited roof coverage would save about $115 based on the state's annual standard premium of $716 for a $80,000 brick veneer home in Dallas County.

Consumer groups responded that many Texans would be unable to afford the $3,000 to $4,000 cost they would have to pay for roof replacement with the decreased coverage.

"This option to provide only cash value coverage for roofs will open up a whole new area for potential abuses by insurance companies, " said Dan Lambe of Texas Citizen Action.

"We are also concerned that many homeowners won't be fully aware of what they will have to pay if their roof must be replaced."

An industry spokesman rejected the complaints and predicted that other companies would seek to sell limited roof coverage policies.

"This is not a one-company issue," said Jerry Johns of Southwestern Insurance Information Service. "This is a ruling that could have far- reaching implications for hundreds of insurers in Texas.

"We predict that other insurers will be asking the commissioner to approve similar rules on actual cash value coverage in the near future."

Mr. Johns said the change would ease insurance availability problems that have been felt in the Dallas-Fort Worth area since the spring of 1995, when hailstorms caused $1.1 billion in property damage. Most of the claims paid out by insurers were for damaged roofs.

State Farm Insurance, the largest property insurer in Texas, also has restricted sales of new policies in the Dallas-Fort Worth area.

But a State Farm spokesman said Wednesday the company has no current plans to sell policies with limited roof coverage.

"We have no plans to use that type of policy in the Dallas-Fort Worth area," said Keith Androff, a spokesman for State Farm.

State Farm representatives testified in favor of the limited roof coverage option at a public hearing earlier this month.

A few days after the hearing, Commissioner Bomer was ready to file his order, but he pulled it back when Farmers would not agree to a date to resume sales of new policies in the five counties.

Farmers finally gave the state a date, and Mr. Bomer approved the order, which directly affects the two primary Farmers subsidiaries selling homeowners insurance. Those are Farmers Insurance Exchange and Fire Insurance Exchange.
(DMN) Roof Insurance Coverage.

The Dallas Morning News


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