BuildFax works with many of the nation’s largest carriers to help better price, underwrite, and market to specific risks. Our unparalleled property insight comes straight from the source – our massive database containing over 23 billion data points of building and remodeling records. This article explores the various lifecycle stages of roofs in Florida and how the state’s unique environmental factors impact carriers.
Why Florida? For starters, we collect approximately 95% of all building permit info in the state, so we’re working with a robust data set. Secondly, we think there’s some interesting stuff going on with wind mitigation credits – especially as they pertain to roofs updated around the time when those credits were introduced. Finally, we think Florida has some unique opportunities that can inform other regions. There’s a lot to learn from the sunshine state.
The research we conducted focused on three main areas of the roof life cycle in Florida: Aging roofs, middle-aged roofs, and young roofs. For the purposes of the study, we’ve focused on asphalt shingle residential roofs only, which account for nearly 85% of all residential roofs.
Showing Signs of Age
Right now in Florida, there are 1,190,000 roofs over the age of 20. We define aging roofs as those older than 20 years because the majority of underwriting eligibility rules for asphalt shingles have an eligibility line right around that mark. That’s when carriers see a spike in a property’s propensity for loss associated with the roof.
Across the state, on average, 27 percent of roofs are aging. There are slight variations across Metropolitan Statistical Areas (MSAs). For example, Orlando runs slightly older at 29 percent while Jacksonville has fewer aging roofs, with only 8 percent falling into that category.
The 71.4 Million Dollar Problem
We believe it’s important to consider how these roofs could negatively impact loss ratios. We conducted a blended, anonymized analysis of claims data from many carriers over the last three years. A simplified univariate analysis of wind hail loss ratios for homes with roofs older than 20 versus homes with roofs younger than 20 showed a 3 percent differential between loss ratios.
This is a very broad view of roof age segments, but it’s an effective way to see the added cost of risks on your books that may not be eligible based on their roof age.
We can take it a step further to see what that differential means across the entire state. To do this, let’s envision a best-case scenario and compare it to the statewide reality. In this scenario, we’ll pretend that ineligible roofs (aging roofs) have all been replaced and now behave like eligible roofs.
In this best-case scenario, all 1.19 million roofs in the aging category are all brand new and now have the .03 loss ratio. Assuming a $2,000 average annual premium, this equates to an expected payout of $60 per policy for that peril. In the current reality, these 1.19 million aging roofs have a .06 loss ratio which would equate to an expected payout of $120 per policy for that peril.
Based on these comparisons, aging roofs cost double what their younger counterparts do. At best, the industry annual payout would be about $263,400,000, but in the current reality the industry is paying out $334,800,000. The delta reveals a pretty expensive problem, $71,400,000 across the state of Florida per year.
A Look at Middle-Aged Roofs
Middle-aged roofs are defined as roofs between 10 and 20 years old. Of the 4,390,000 residential properties with asphalt shingle roofs, 2,190,000 are middle-aged. This is the largest of the three categories covered in our research.
“It makes sense that there are so many middle-aged roofs because these are homes built during the housing boom, and with the rollout of wind mitigation credits, there was a huge incentive to replace the aging roof stock at that time,” said Dan Kenney, Senior Director of Insurance Engagement at BuildFax.
Per statute, roofs updated after 2001 receive a flat discounted rate on the hurricane wind portion of their premiums. About half of all roofs in the middle-aged category qualify for the wind mitigation credit – and all of the young roofs qualify as well.
Because many of these roofs were replaced when the wind mitigation credits went into effect, a bulk of them were built using better codes, materials, and building techniques.
Middle-Aged Roofs Are Ripe for Innovation
The problem with the wind mitigation credit is that it doesn’t adjust as roofs start to degrade from wear and tear. Across the country, we see carriers rate on roof age and apply surcharges as they age. Many of these products have a base rate of 1 starting at 10 years and then discount or surcharge accordingly.
According to our data, we see that it doesn’t make sense to add additional credits on top of the wind mitigation credit. But we wondered what happens when these roofs start creeping beyond 10 years in age.
The loss ratios for roofs under 20 years shows an uptick right at the 10-year mark. Roofs between 10 and 14 years old are more susceptible to wind and hail loss, but they’re still getting the wind mitigation credit.
While roofs in the 15-20 year-old category might not be fortified the same way as those in 10-14, their performance could be a predictor of the future. If they follow the same trends we see for the 10-14 segment, it’s likely we’ll see more losses as younger roofs with the wind credit move into the middle-aged category.
“The jury is still out on this,” said Sefton Patton, Senior Director of Product at BuildFax, “We don’t have enough data yet. You might assume that those better roofs might not have as steep of a curve as we’re seeing here, but it’s something I plan to keep watching over the next few years.”
Although credited roofs are fortified to withstand a hurricane better, they’re still prone to normal wear and tear. Paired with the hot, humid Florida climate, aging roofs are at more of a risk than they seem. It’s worth exploring the opportunity to surcharge credited roofs as they age beyond the 10 year mark.
There are 1,010,000 young roofs – or roofs under 10 years old – in Florida today, and roughly 92,000 new roofs are being added each year. Based on our research, this trend is consistently moving forward.
“This data indicates that a lot of policy holders are replacing their roofs each year,” said Patton. “As an insurer, it’s incredibly important to be aware of them.”
Don’t Miss Out on New Roofs!
When you look at the loss ratios for young roofs, you can see that most of the time they fall under the .02 mark. From a pricing perspective there are no discounts to give since the wind mitigation credits address this well. But what if you were to target these risks from a marketing perspective?
These young roofs aren’t just new construction, which most carriers are already targeting. They’re also aging homes with newer roofs. A home with an updated roof most likely belongs to someone engaging in other home maintenance projects. This makes the roof behave more like new construction in propensity for loss.
“A key takeaway here is that while everyone is chasing new construction, there’s a huge opportunity for targeting older homes with updated roofs,” said Kenney. “The other thing to keep in mind is new roofs and cat modeling. If you’re modeling a roof at 11-15 but it should actually fall into the 1-5 category, then your PML valuation will be way off. Not knowing about these new roofs will cost you when it’s time to negotiate reinsurance terms.”
The age of a roof can reveal a wealth of information about a property. There are strategic considerations to take for every stage of its life cycle. Aging roofs could cost a lot if you’re not aware of them, while middle-aged roofs often receive wind mitigation credits but behave more and more like old roofs with age. Young roofs, on the other hand, are a good target for marketing and can improve PML calculations for better reinsurance terms.
Carriers are well aware of how important property condition is, especially roof condition. And in Florida, accurate roof age is more important than ever to help carriers make better decisions.
Continuing the Conversation About Florida Roofs
BuildFax offers a complimentary loss analysis that we recommend for anyone who’d like to see the impact accurate roof age data can have. Although we focused on asphalt shingle residential roofs for this research, we do have data for commercial properties and various other types of roofs.