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Co-insurance

Do I actually have a roof over my head?


There are many things we take for granted. A roof over our head is one of them. In Canada, the weather can change instantly. Hurricane windstorms to calm and sunny, to ice and snow. We rely on that roof quite a bit, and then we realize how frustrating it can be to fix an issue that starts in the roof and attic. Here is some information to make sure your roof is looked after and how insurance companies now assess claim damages to your roof.

I’m not going to explain how roof systems work, as there are so many different kinds of roofing. Shingles, Rolled Roofing, Metal, Tin, Clay Tile, Metal Tile, Shakes, etc. However, there are some things you can do to make sure you are looking after the necessities.

  • Inspect the roof twice a year; After winter and after summer. These are times of stress on a roof.
  • Keep the roof clean and free from debris.
  • If shingles are curling or free of granules, your roof may need immediate replacement or repair.
  • Make sure your shingles are properly sealed to the roof and that all flashings, rubber washers and other items where there is a seal are in good condition with no cracks – as these are the source of most leaks.
  • Keep eavestroughs and gutters clean – a build up of debris can cause water to not drain properly, potentially causing future water damage issues.
  • Make sure your ventilation is available. All the vents, ridge vents, wind birds, etc. need to be free and clear of debris and never blocked. Proper ventilation ensures heat and moisture do not build up in the attic area. This prevents ice damming issues.
  • Make sure downspouts are installed correctly (directed away from building) as a buildup of water right next to the house can cause seepage issues. (Not typically covered under insurance).
  • Remove branches and leaves from the roof as this can cause mold or moss issues on roof. Especially cedar roofs as they need to breathe.
  • Proper insulation in the attic is important to eliminate any moisture / freezing / condensation issues from occurring. Make sure you check near the edges of the attic as the wind can blow the insulation around creating bare patches.


How do insurance companies look at insuring a roof?

In 2018, insurance companies have started applying depreciation to roofs for wear and tear. Most companies start applying this depreciation on a roof that is around 16 years or older if you put in a claim for wind or hail damage. This means that you’ll be deducted a certain percentage of the claim based on the age and condition of your roof prior to the loss.

This doesn’t mean all roofs will be adjusted the same. For example, if you have a weather-resistant material like a metal tile vs 20 year shingle, the depreciation will be quite different. An asphalt shingle will depreciate at a rate of 10% per year after the 15 years to a maximum of 80% depreciation, regardless of age.

 

  • Asphalt/Fibreglass (Class 1 Shingle) – 10%
  • Asphalt/Fibreglass (Class 4 Shingle) – 7%
  • Membrane Roofing – 5%
  • Metal, Rubber, Synthetic, Slate, Tile, Concrete – 2%
  • Wood Shakes or Shingles – 4%
  • Tar & Gravel – 30%
  • Other – 9%
  • Soffit, Fascia, Eavestroughs – 5%

Example:

If you have a 20 year old roof with asphalt shingles (class 1), the insurance company will pay to have your roof repaired or replaced minus 50% depreciation (10% per year x 5 years).

If you have any questions regarding this coverage or the changes when settling a roofing claim; please contact us. We want to set you up to handle any risk management before a claim occurs. The best thing you can do is be prepared.

Co-Insurance. Why share the claims burden?

How many times has it happened to you where you thought you were entitled to a certain return on an investment, and it was laced with hidden costs and fees?  Whether it is a RRSP, GRC, Mutual Fund or another type of financial initiative, it always seems like there is a hidden cost involved in claiming your investment on your own terms.  Insurance policies, at times, can feel the exact same way.  Whether it is a deductible that wasn’t properly explained, or a settlement that is reduced by a clause in the contract, it can feel like there is a battle at claim time.  Co-Insurance is one of those types of situations in a claim that can also cause frustration and confusion.


Where did Co-Insurance come from, and why do insurance companies enforce such harsh penalties?

The answer stems back to the early 1800’s back in London.  Insurance companies back then were trying to understand how to fairly adjust a partial loss where a building had been inadequately valued.  For example, there would be an instance of a large barn catching fire, and that fire being put out prior to total destruction of the building.  The front half of the barn was almost destroyed with $30,000 worth of damage, while the back half of the barn suffered little to no damage.  This presents the question in valuation.  If the entire building was worth $100,000, but only got insured for $50,000, which half of the building was the insurance purchased on?  The insured would insist that the insurance was purchased on the front half (of course!), and the insurer would insist that the insurance was purchased on the undamaged back half of the building (classic!).  This would result in frustrating court processes to determine where the insurance started, and ended. 

To rectify this situation, the courts along with the insurance companies came up with a relatively simple system to eliminate these long arguments and questions of insured property.  This was called the “Co-Insurance Clause.” They concluded that the insured (policy holder) and the insurer (the company the policy was purchased from) would co-insure the loss.  This clause is derived from a notion that the policy holder would take partial responsibility for under insured property on a partial loss, and that the insurance company would also step up, and take partial responsibility. 

The solution would save the people, and insurance companies abroad, tons of legal costs, and would go on to reduce insurance premiums as a result.


The co-insurance clause is applied to partial losses only, and it encourages policy holders to carry adequate limits of coverage on property.  The clause completely revolves around one simple formula to determine the appropriate amount of shared responsibility between a policy holder and insurance company to co insure any type of situation.  The formula used for these settlements is as follows:

What did the affected property get insured for?      X   Amount of the loss  =  Settlement
What should have the property been insured for?

Using this formula with our previous example on the $100,000 barn; the amount of responsibility shared in the partial loss between the policy holder and the insurance company would be calculated as follows:

 $50,000     X    $30,000    =    $15,000 Settlement
$100,000

This formula ensured that the co-insuring of the partial loss was equally shared between the policy holder and the insurance company in a way that was fair, and easy to calculate. 

So here’s the rub

Why suffer a co-insurance penalty?  The good news is that there is no reason to.  The simple way to avoid these situations is to ensure that you carry proper limits of coverage on your property so that this clause doesn’t even become a factor.  Talk to your broker at Block’s Agencies today to ensure that you are carrying adequate limits of coverage for your property.  You will sleep better at night knowing that you are adequately insured, and that you don’t have to worry about a nasty co-insurance surprise!