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PROPERTY INSURERS USE AI-GENERATED ROOF CONDITION RATINGS TO MEASURE YOUR INSURABILITY

Seek Shelter Roofing & Restoration
March 20th, 2024
Why is roof condition such a critical factor for residential and commercial property insurers assessing underwriting risk?

Key Takeaways:

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  • Roof condition, highly predictive of future insured losses, is crucial to assessing coverage eligibility and associated claims risk—and can be a reliable proxy for the state of the underlying structure.

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  • More than 34% of all property claims stem from wind or hail damage to the roof, making information about roof characteristics and condition critical when evaluating residential and commercial properties​​

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  • Today’s most robust roof condition rating (RCR) solutions are used by half of the top property insurers in the US and are approved for ratemaking in most states

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  • These solutions include reason codes and confidence scores that give insurers the ability to become trusted partners to prospects and policyholders to help make a property insurable and reduce claims risk 

Why is Roof Condition So Important to Property Insurers? 

Roof condition directly influences the risk level an insurer takes on when underwriting a property. An old, damaged, or poorly maintained roof can be a recipe for disaster when it comes to claims and payouts. And that matters at a time when insurers face rising CAT losses, stubborn inflation levels, longer claims cycle times, and plummeting customer satisfaction.

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Even under “normal” conditions, asphalt shingles and clay tiles that make up the vast majority of all roofs deteriorate over time. But on any given day across the US, more than 120 million roofs on single-family homes, habitational/multi-unit dwellings, and other commercial buildings and facilities are exposed to any of a mix of hazards such as wind, hail, tree fall, extreme temperature swings, fire, and intense direct sunlight. 

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Today, 34% of all property claims stem from wind or hail damage predominantly impacting the roof. That puts information about the characteristics and condition of the roof at the top of the list when evaluating residential and commercial properties.

What Characteristics Point to Increased Roof Claims Risk?

Specific roof characteristics represent an increased risk for property insurers, including:

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  • Leaks and Water Damage: Flat or low-slope roofs, or the presence of rooftop equipment, are more prone to water pooling and leakage, which can lead to significant damage. 

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  • Deterioration: Roofing materials, such as wood shingles, tar, and gravel, may be more susceptible to wear and tear. Missing or damaged shingles, sagging, or rot are clear, visible risk factors. 

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  • Defects: Studies have also borne out that visible roof defects caused by natural hazards, aging, or human-related damage indicate an elevated likelihood of future claims.

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  • Inadequate Drainage: A roof without proper drainage systems can cause water to accumulate and heighten the risk of damage.

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These are not small matters to underwriting, rating, and portfolio management strategies that depend on understanding property conditions and risk exposure.

Roof Age Matters, but It's No Longer Enough.

Industry claims analyses do demonstrate that older roofs generally perform worse than newer roofs, suggesting that they “correspond with more claims and claims of greater severity.” So, it’s no surprise that roof age has long been a standard input for insurers. It’s also an easy data point to collect from agents and applicants or to source from property record data. Together with roof material and living area, this metric is used by most insurers to make coverage decisions—including whether to underwrite at replacement cost value (RCV) or actual cash value (ACV) for the roof.

  

But other factors, like property-specific weather conditions, maintenance schedules, and dozens of other more salient data points, give shape to an indisputable reality: Different roofs deteriorate differently or are damaged with varying climate conditions and hazard occurrence rates across the country. In one recent study, for instance, our team compared roof age against industry losses from hail-related claims and found the highest loss ratios were experienced by homes with roofs that were just 6 to 10 years old.

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As a result, modern AI-based roof condition rating intelligence is needed to augment roof age and provide a far more complete dataset for gaining a clear read on roof condition, remaining lifespan, and associated claims exposure. 

Why Roof Condition Ratings Are Now Business Critical

As many insurers are discovering, new inputs such as AI-based analysis of true roof condition, can help improve risk selection, optimize pricing, and maximize underwriting profitability. This is especially true when you consider that roof condition can be highly indicative of the risk associated with the underlying structure. Total home repair costs for houses with severe roof condition average 250% higher than those with good roof condition, for instance. 

Residential Roof Risk Simplified 

In real-world implementations, roof condition ratings have been shown to help insurers:

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  • Drive pricing decisions

  • Optimize and reduce inspection spend

  • Inform eligibility decision

  • Assess the current condition of property before renewal

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By understanding roof condition at time of quote, for instance, it’s possible to reduce the need for an inspection and the likelihood that the premium will need to be adjusted after the policy is already bound. The ability to understand the condition of any roof also enables insurers to precisely select and prioritize the best risks while avoiding those more likely to result in a future claim.

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