Insurers shifted roof-replacement costs onto homeowners thanks to a new federal rule — just in time for hail and hurricane season

After softball-sized hail was reported in Colorado this week, thousands of homeowners will be assessing their homes and cars for damage.

Those who find extensive damage to their roofs might be stuck between two options: filing an insurance claim, which could trigger a premium increase, or coughing up the cash for the necessary repairs or replacement.

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The concern is valid — the cost of a replacement ranges from $5,000 to more than $30,000, depending on a roof’s size and materials. But even filing a single claim can contribute to a home-insurance premium increase ranging from 7% to 10%, some legal experts estimate, depending on the location and severity.

It’s a high-stakes decision for homeowners as the rising cost of insurance is a growing burden, especially for households struggling to pay for groceries and gas, as inflation reached a three-year high in May. Pricey insurance premiums are also a barrier for aspiring home buyers, who must also consider elevated home prices, mortgage rates above 6%, and increasing property taxes when budgeting the cost of homeownership.

For existing homeowners who experience roof damage this hail and hurricane season, insurance experts recommend investigating the actual scope of the damage and weighing the potential payout against their deductible and the long-term impact on their insurance history before filing a claim. It’s also important to note that Fannie Mae FNMA and Freddie Mac FMCCG no longer require home-insurance policies to cover the full replacement cost of a roof. That means insurers only have to pay out the depreciated value, leaving the homeowner to foot the rest of the bill.

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Policies that only pay out the depreciated value tend to come with lower premiums, but if the policyholder is “not prepared and they get a hailstorm or tornado, they are going to be in for the surprise of their life when they get that bill from the roofer saying, ‘Hey, your insurance is only covering $9,000, you owe another $9,000 to put a new roof on,’ ” said Lindsay Frangie, a Georgia-based branch partner at the lending firm Alcova Mortgage.

Since insurers consider overall claims history when pricing policies, policyholders should consider the long-term implications of filing a claim, said Loretta Worters, vice president of media relations for the Insurance Information Institute. 

“Multiple claims over a relatively short period may affect future premiums or insurability, depending on the insurer and state regulations,” Worters said. However, “if there is any question about the extent of the damage — particularly after a hailstorm — or if repairs are likely to exceed the deductible, policyholders should report the loss promptly and allow the insurer to inspect the property.”

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If you aren’t sure about filing a claim yet, insurance experts still recommend using time and date-stamped photos and videos of the damage to document what happened, when it happened and how severe it appeared. That way, if you do end up submitting a claim, there’s more evidence to prove the extent of the damage.

“For hail claims specifically, I often tell homeowners there is a difference between not reporting damage and not investigating damage,” said Jennifer Taylor, a public adjuster and CEO of Claim Ready, an AI-powered platform that scans insurance policies for gaps in coverage. “After a major storm, it is generally wise to determine whether damage exists and understand the scope of the loss before deciding whether filing a claim makes financial sense.”

‘A Band-Aid on a bullet wound’

In March, the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac now allow home insurance policies that provide only “actual cash value,” or ACV, coverage for roofs. This means that if a homeowner needs a new roof, the insurer only covers the depreciated value of the roof rather than the entire replacement cost.

President Donald Trump’s administration touted the move as an affordability win, saying it would lower Americans’ insurance premiums. That’s true to an extent — ACV premiums are 10% to 20% cheaper than replacement-cost value premiums according to some estimates — but the out-of-pocket costs after a storm can easily wipe out any savings.

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For example, if hail damages your roof and it costs $10,000 to replace it, a replacement-cost value policy would pay out $10,000 minus a deductible. But if you have an ACV policy, the insurer will consider the age and condition of the roof before determining a payout. So if the insurer determines the roof is worth $2,000, the remaining $8,000 falls on the homeowner.

Because of this, housing experts aren’t convinced that the change will make the cost of homeownership more affordable.

“I think it’s a Band-Aid on a bullet wound,” Frangie said. 

Many consumers won’t even realize they have ACV coverage when they renew or buy a new policy because some insurance agents “brush off the details,” said Amy Bach, director of the consumer advocacy group United Policyholders.

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“The amount of commission [agents] would earn by recommending more coverage is not worth it to them against the risk of them losing you as a customer because of the price point,” Bach said.

To know what you’re getting into when you get a new policy, Bach recommended asking your agent something along the lines of “How much money will this policy generate to repair my roof if it gets damaged?” If you can’t cover the dollar amount they tell you, either start building an emergency roof-replacement fund or consider paying a bit more per month for the replacement-value coverage.

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