Trends, challenges and opportunities in roof risk
The average cost to replace a roof in 2023 was $16,000 for residential properties and $40,000 for commercial structures.
One of the most striking images of Hurricane Milton was how the storm destroyed the domed roof of Tropicana Field, the home stadium of the Tampa Bay Rays.
But it doesn’t take a Category 3 hurricane to cause significant roof damage to homes and businesses, which is something property insurers and policyholders know all too well as of late.
Insurers have been experiencing unprecedented losses from severe convective storms driven, in part, by the high costs of repairing and replacing roofs, along with the increasing frequency of losses.
Consider this:
- Roofing line items were included in 38% of residential assignments and 31% of commercial assignments, according to a 2023 Verisk analysis.
- Meanwhile, the average cost to replace a roof was $16,000 for residential properties and $40,000 for commercial structures.
As costs rise and more properties are exposed to severe weather, the combination of current, reliable data insights and proper mitigation efforts can help reduce the risk.
Exposure growth leading to more losses
Severe convective storms can unleash damaging wind and hail that are a major threat to properties, particularly roofs. In 2023, wind and hail events together averaged 62% of total catastrophe losses. These perils alone accounted for 89% of residential and 81% of commercial roof claims.
What’s more concerning is how the hail risk is evolving. These damaging events are no longer limited to what’s traditionally considered “hail alley” in the Midwest. More hail events are occurring further east, as states such as Indiana and Tennessee were in the top 10 for the most damaging hail events in 2023.
Population trends are also driving hail and roof losses. Consider Texas, which is already a hotspot for hail and wind events. The Dallas-Fort Worth area is seeing the largest urban expansion, with residential suburbs overtaking rural land. Five of the 10 fastest-growing U.S. cities in 2023 are rural suburbs of Dallas-Fort Worth.
Over the past decade, eight severe storm events have caused at least $1 billion in total damage in the area. Based on population growth, a $1 billion event 10 years ago could be nearly 20% more costly today in the Dallas-Fort Worth area before accounting for inflation, according to an analysis.
Rising costs and aging roofs
While increasing exposure means more roofs are susceptible to damage, rising reconstruction costs are also driving severity of losses. Total reconstruction costs increased by 5.2% from July 2023 to July 2024. Examining data over a more extended period, reconstruction costs have increased by more than 30% since 2020, outpacing the rate of inflation.
Another factor influencing severity is roof age and condition. Our analysis found that roof conditions tend to be worse in regions where hail and wind events are most frequent and severe. And overall, more than a quarter of roofs are misclassified as being younger than 15 years.
It can be challenging for insurers to get accurate information on a roof to price coverage adequately. Traditionally, insurers have relied on public records or policyholders to relay the age and condition of their roof. But according to a recent report, more than half of U.S. homeowners do not check their roofs for issues, making roof inspections the least likely maintenance task to be undertaken by homeowners.
While some insurers still use onsite inspections, they can be less efficient and costly, and more often don’t occur until after a loss.
Opportunities to mitigate roof risk
Fortunately, we are seeing technology and building code trends help insurers better understand roof risk and property owners mitigate damage.
From a technology perspective, tools are available to help insurers get greater insight into roof risk, such as aerial imagery analytics that can remotely determine a roof’s age, material, condition, and remaining useful life. Of course, it’s important that the analysis is current and augmented with other data sources such as building permits, weather reports, reconstruction costs, and loss history to get a more holistic understanding of the property.
On the mitigation front, there’s a trend of states introducing fortified roof legislation for personal and commercial property, including fortified roof upgrade coverage, which generally helps offset the cost of replacing a severely damaged roof with a fortified one, and wind mitigation credits, which generally are designed to address discounts for helping protect a building against windstorms.
Research suggests these mitigation efforts have long-term benefits. A University of Alabama study found average insurance savings of 10% for homeowners in wind-borne debris regions who utilized Insurance Institute for Business & Home Safety (IBHS) construction standards, and a 24% reduction in anticipated costs for homes in high-wind zones.
These trends are good news for insurers and property owners after recent years of widespread damage from severe weather. While no one can do much to predict or prevent the increase in severe storm activity, or slow construction in vulnerable areas, there are opportunities to better assess risk and mitigate losses when it comes to roofs.
Doug Caccese is co-president of Underwriting Solutions at Verisk, leading the company’s domestic and international underwriting teams, which leverage deep proprietary data assets, high-quality analytics, and modern technologies to help drive digital transformation in the industry.
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