03/02/2024
RE: Property policies with Roof Surface Payment Schedules. The RSPS diminishes the amount of coverage (to roofs only) on average about 3.3% per year as a roof ages. That means that after about 10 years, the roof only has 66% coverage. THEN the carrier applies the typical depreciation to the loss and THEN the deductible is subtracted.
Here’s the scam, the carriers are passing these policies off as RC policies and the premium is not reduced accordingly. They obviously are not RC policies, you do not have replacement cost (betterment) coverage on the roof. They are ACV policies with RC benefits masquerading as RC policies; that’s bait and switch.
It gets worse for the consumer. Mortgage companies require that consumers maintain RC policies on their dwelling/commercial buildings to protect the mortgage company’s interest in the property. Once the new policy is in place (the one with the RSPS) the consumer just violated the terms and conditions of the mortgage, and they have no clue what a precarious situation the carrier they're trusting, just put them in.
It potentially gets far worse. If the consumer doesn’t have access to the money to replace their roof and can’t (choose not to) borrow this much, things are about to get worse for them - much worse. You say “Fine, I don’t have ten grand just lying around anyway, so I’ll just leave the roof like it is. It isn’t leaking yet anyway and I’ll simply change to a different insurance carrier that isn’t going to stick it to me.”
No, you will not - no insurance carrier will insure your house with a totaled roof on it until it is replaced - so they’re stuck with that carrier, like it or not. The carrier will send you a letter stating that they will cancel your coverage within 60 days if you do not replace the roof. To be fair, all carriers do this when there is significant damage to a building, like a totaled roof.
If the carrier cancels their coverage, the best case scenario (if they don’t have a house fire after the coverage is canceled) is that their mortgage company will quickly purchase what’s referred to as a forced (lender/creditor) placement policy on the house – to protect their interests, not the (former) Insured. The forced placed policy is very expensive and researchers have uncovered that some mortgage companies get kickbacks from the forced-placed carrier on the premium. Consumers can reasonably expect a forced-placed policy premium to be up to three or even four times that of their former policy with absolutely ZERO coverage for the totaled roof!
To make matters worse for the consumer, there is no contents (personal item) coverage, additional living expenses, personal liability or medical payment coverage on this new expensive policy like they had with their previous homeowner’s policy – and, again, they have ZERO coverage for your storm damaged, totaled roof! The force-placed policy only protects the mortgage company – zero coverage for the consumer, at 3-4X the price
Force-placed policies can really hamper a homeowner (who is already having difficulty making their mortgage payment) from getting their loan current again since it often results in a significant increase in the monthly payments to cover the negative escrow balance. Occasionally it may even push an at-risk homeowner into foreclosure. Some of these force-placed policies are scams themselves, with lenders getting caught skimming. An example is HSBC, Assurant paying $1.8M to settle a lawsuit on April 13, 2015 ending their force-placed kickback scheme of paying “commissions/revenue sharing” (kickbacks) to the mortgage company purchasing the insurance policy.
Educate your clients. Have your client read Chapter C9 in my book 'Level the Playing Field' regarding this scam so they make well-educated decisions going forward based upon facts, not misplaced hope.
