Farm Bureau Insurance to limit roof payouts

By Duane Marsteller, The Tennessean

Farm Bureau policyholders soon will have to dig deeper to fix their damaged roofs, and more Tennessee homeowners could be following suit because of last year’s severe weather.

Tennessee Farmers Mutual Insurance Co. better known as Farm Bureau. said it will no longer pay 100 percent of the cost for replacement shingles and other roofing materials. Instead, it will cover only the actual cash value, or replacement cost minus depreciation.

The change, which applies to policies written or renewed on Oct. 1 and afterward, means homeowners could be liable for as much as 75 percent of the cost of new roofing materials.

The new policy doesn’t apply to trusses, decking or other structural roof components, which — along with labor — remain fully covered.

Farm Bureau officials called the move necessary to shore up the company’s bottom line. "We had to make this change because we can’t continue to be unprofitable and lose money," spokesman Dan Batey said.

The insurer has paid out more in claims than it has collected in premiums every year since 2008, prompting Standard & Poor’s to lower Farm Bureau’s credit and financial strength ratings last month. The insurer has been drawing down its surplus fund to cover the gaps.

But the situation worsened last year, when the company paid out $1.40 for every $1 it took in. The resulting $267 million shortfall largely stemmed from replacing older, past-their-prime roofs that were damaged by severe weather, Farm Bureau said in a filing with state regulators.

While Farm Bureau already had limited its coverage of certain older roofs, the company felt it had to expand it to all of its 380,000 policies in Tennessee, Batey said.

The company has been notifying policyholders of the change, which has drawn some criticism.

In a post on the company’s Facebook page, Jason Paul Kimbrell of Lawrenceburg, Tenn. said, "This is ridiculous and you will lose business."

But others said they understood the reasons for the change. "Thanks for being forthright and transparent," posted Laura Mansfield Bower of Knoxville.

Not that unusual in TN

State insurance officials said Farm Bureau, Tennessee’s second-largest home insurer, is the first to apply the coverage limits to all of its policies in the state.

But the limitation itself isn’t that unusual in Tennessee. Allstate has it for all new policies, the Tennessee Department of Commerce and Insurance said. And Homesite, affiliated with Geico and Progressive, in July began limiting coverage of hail- and/or wind-damaged roofs that are at least 10 years old.

Insurers have been financially stung by a spate of severe weather in Tennessee in recent years, including the May 2010 flooding in Nashville, an April 2011 tornado outbreak and several hailstorms last summer. That made Tennessee the nation’s most unprofitable homeowners’ insurance market last year, according to an analysis by SNL Financial, a financial information firm in Charlottesville, Va.

Batey said it long had been a common industry practice to offer limited roof coverage. That began to change in the early 1990s, as insurers began offering full replacement coverage as a means of gaining market share.

"It ended up basically being, if you had roof damages, you got a new roof," he said. "You can’t afford to keep doing that."

Farm Bureau’s move may swing the pendulum the other way, said Ryan White, managing partner of Raymond Preston & Reed, an independent insurance agency in Nashville. "Companies either will start raising deductibles or doing ACV (actual cash value)," he said.

Julie Mix McPeak, Tennessee’s insurance commissioner, urged people to review their policies to see what is and isn’t covered.

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