Mike Silvers, CPRC, Silvers Systems Inc. and FRSA Director of Technical Services
It seems lately that I cannot escape the obvious subject for this column – insurance. As much as I would like to cover something like a new roof installation method, the property insurance issue and the interaction with the roofing industry, as well as the building code, continues to be front and center, making it very hard to ignore. As those involved in the roofing industry know, there seems to be something new every day. Most of us are well aware and very concerned about what the current state of affairs has done to our trade’s reputation. With so much information and misinformation coming from so many sources, it can be hard to see the big picture. It is important to look at the issue from the industry’s perspective.
The Florida Hurricane Catastrophe Fund (FHCF) or Cat Fund was established in 1993. It is a tax-exempt trust fund that acts as reinsurance for approximately 165 of Florida’s property insurers, including Citizen’s. Recently the Fund has been asked to cover additional exposure by acting as a guarantor or reinsurer to cover property insurers whose ratings have been downgraded. The administrators of the Fund have the authority to levy emergency assessments on all property and casualty insurance lines except workers’ compensation, medical and federal flood. The insurance lines that could be levied currently represent approximately $56 billion in annual premium. By the end of 2022, the Fund balance will be approximately $12.8 billion. This sounds like a lot of money and it certainly is. It accounts for approximately one percent of Florida’s $1.2 trillion gross domestic product. But it may not be enough when you consider that the cost of insurance claims paid out for Hurricane Andrew were $15 billion in 1992. Today, according to RMS (a highly-regarded Moody Analytics Company), the cost for the same claims would be between $80 to $90 billion. Other sources estimate a current cost between $50 to $100 billion. One needs to keep in mind that even though Andrew was a very powerful storm, its highest winds were concentrated outside of a major metropolitan area. If Andrew had been centered just 25 miles further north, you could have multiplied the amount of damage and claims many times over.
Hurricane Irma occurred in 2017 and the Cat Fund paid approximately 43 percent of the losses. The common understanding is that the larger the storm, the higher the percentage paid out by the Fund. It’s clearly not hard to imagine property damage claims of over $100 billion from one major storm that impacts any of Florida’s urban coastal communities with high density population. Multiple storms could add to that already staggering number. Using the $100 billion figure and a 50 percent ($50 billion) Cat Fund hit, you can see that the Cat Fund would be quickly depleted in this very plausible scenario. Florida would be left covering a Cat shortfall of $38 billion in claims while at the same time trying to replenish the Fund before any additional major storms occurred. Not only would our insurance premiums skyrocket but every business in the state would be hit with premium increases that would be passed on to consumers. It’s not a pretty picture, but there are things that can be done and, if you are so inclined, a prayer wouldn’t hurt.
With our industry’s current labor and material shortages, this is a very important question. After Irma, approximately 54 percent of property claims involved roofing issues. That figure was 74 percent for Hurricane Michael in 2018. Using either figure, the amount of roofing installations needed would be staggering. Those of us who have been in the industry after major hurricanes understand how quickly both labor and material become scarce and much more expensive. Most of those experiences have been in times when inventories were, compared to today, plentiful and labor was at least available. We are all very familiar with our current situation in which neither is the case. It is clear that we would have a serious problem trying to respond quickly. Many homes and other buildings would be left exposed to additional post-storm water damage. For just how long is unknown. Tarps are not a very good solution, with insurers often having to repair or replace them multiple times before a permanent solution can be achieved. In the interim, more water damage will occur. Florida’s roofing contractors are far too familiar with what comes next. Contractors swarm into Florida with little understanding of our state’s roofing practices or building code. Many unscrupulous contractors would use their current techniques to sell jobs and lockdown work with worthless promises in exchange for assignment of benefits or direction to pay contracts. Many jobs would sit unstarted or unfinished.
One way to help provide a greater degree of temporary protection is through a Florida Building Code (FBC) mandated secondary water barrier (SWB). Currently, a SWB is required in the 65 counties in Florida that are outside the High Velocity Hurricane Zone (HVHZ – Miami-Dade and Broward counties only). Amazingly enough, the HVHZ code does not even allow SWBs as an option. For example, tile roof systems installed outside the HVHZ use the FRSA-TRI High Wind Concrete and Clay Tile Installation Manual (which isn’t accepted in the HVHZ). The tile manual requires better underlayment systems than those that are permitted in the HVHZ; systems that have been
tested to meet the code-mandated uplift resistance specified in ASCE 7. HVHZ underlayment systems do not necessarily comply with ASCE 7. Throughout the state, contractors can choose to use the HVHZ prescriptive methods (Miami-Dade notices of acceptance (NOA) and roofing application standards (RAS)) rather than the tile manual. These Miami-Dade standards have been weaker than those used in the manual for several code cycles and, ironically, are basically the same as they were before Hurricane Andrew exposed serious and widespread shortcomings in South Florida roofing practices – and started the process that supposedly made the HVHZ code the strongest in the state.
The underlayment requirements used for steep slope roof systems other than tile in the HVHZ are also much less stringent than those required in all other areas of Florida. The best performing SWBs consist of a self-adhering underlayment (SAU) applied direct to deck, which isn’t even an option in the HVHZ where the impact from major storms is theorized to be the most likely. That likelihood was the original justification for a separate code for the HVHZ during the creation of the FBC. Additionally, a SAU system is the only underlayment listed on the uniform mitigation form that is eligible for a wind mitigation premium discount. It seems as though the insurance companies
clearly recognize their value. Unfortunately for Floridians, these HVHZ requirements have failed to keep up with changing application methods and materials. Let’s hope the time is coming when all Floridians have the option to be protected from unnecessary damage and the claims they create. Remember, when enough damage is done because of a lack of secondary water barriers in South Florida, all of us will be footing the bill.
Better SWBs aren’t the only way we can help reduce claims. More resilient primary roof systems are an obvious way to protect these buildings when the roof systems are installed to resist the wind load as required by the FBC.
We can also, through changes in the FBC, continue to close some of the loopholes being used to promote the “free roof syndrome” and stop the wasted money that is being diverted from legitimate roofing practices and driving up insurance premiums.
None of this works as long as insurers continue to prematurely condemn roofs with years of serviceable life remaining. Who is willing to invest in better roofs when their insurer tells them it has to be replaced after 10 years? Insurers are already dodging the Legislature’s new prohibition on non-renewal for roofs newer than 15 years of age with a number of new initiatives. One requires an existing SAU even though those underlayments were seldomly used that long ago. Other insurers are not renewing or writing new coverages on roofs with solar voltaic panels, particularly those installed on tile roofs. All this while at the same time they continue to pay for very questionable
claims, thereby encouraging the very practices they later rail against. The “free roof syndrome” will not go away until insurers push back on questionable claims by separating real storm damages from the supposed damages that are being used by far too many to take advantage of the system.
Find a Solution to Our Current Predicament? Knee jerk reactions are far too common. The Legislature’s changes to the 25% rule are a good example. Some are now suggesting we tap the Cat Fund for temporary relief from ever increasing premiums. Even a cursory review of the current Cat Fund condition would tell you that would be extremely risky, like placing a band aid on a festering wound. Unless
consumers are willing to accept the incredible risk of forgoing insurance, they will, in most cases, have to live with increasing premiums for the time being. Insurers can’t expect consumers to take it on the chin while at the same time wasting money through lax claims handling and misguided underwriting policies. They also have to stop condemning good roofs with substantial remaining life. The roofing industry has to continue to do its part by producing more resilient roof systems and better secondary water barriers to help reduce claims. We have to continue to train contractors to help them better understand the proper roofing techniques and code requirements. We can also, with the cooperation of those involved in modifying the code, make changes in the building codes that offer readily available ways to accomplish this. The legislature must be cautious in their approach. Too often, they are developing legislation with little input from the industry they too often blame for the problem. If you want to address roofing issues, avail yourself of those with the expertise to provide practical solutions. The same approach should also be used for the insurance industry. Finding those solutions is a tall order,
but if we all work to address these very real concerns, we can help stabilize the property insurance markets and begin attracting insurers back to Florida and start reducing premiums through regular market forces. FRSA has proven to be a strong partner in finding and implementing real solutions. We are here to help while also working to restore our industry’s good reputation.
Mike Silvers, CPRC is owner of Silvers Systems Inc., and is consulting with FRSA as Director of Technical Services. Mike is an FRSA Past President, Life Member and Campanella Award recipient and brings 50 years of industry knowledge and experience to FRSA’s team.
Previous Article