The Impact-Resistant Roof

A cost-saving technology for insurers and policyholders

• Technology and Testing
• The Texas Experiment
• The Real Test -- Costs
• Roofing Materials
• Conclusion

The record

Hail is a peril that threatens all but a handful of states in the United States, but it doesn't strike all areas equally. Since 1980, the country has averaged 3,000 hailstorms a year, with four states accounting for 42 percent of the total. Texas, 500 per year; Oklahoma, 400; Kansas, 225; Nebraska, 135.

Texas officials estimate that up to 40 percent of all homeowners insurance claims in that state result from hail damage. While the Midwest and Great Plains states have the most hailstorms, Colorado has the most storms with large-size hail (diameter greater than 1.5 inches). So even though Colorado has fewer storms, the storms that occur cause more damage. (The largest hailstone ever recorded -- more than 6 inches in diameter -- fell in Kansas in 1970.)

Among State Farm's 25 highest claim payouts in history, eight involved significant damage caused by hail. The company's fifth-largest payout for a single catastrophic event occurred in 1992 -- about 68,000 claims totaling nearly $245 million resulting from a hailstorm in Fort Worth, Texas. Only four natural disasters have caused more losses to State Farm customers: Hurricane Andrew (1992) in Florida, $3.6 billion; Northridge earthquake (1994) in Los Angeles, $3 billion; Hurricane Hugo (1989) in South Carolina, $424 million; and wildfires (1991) in Oakland, Calif., $386 million.

Lost in these large numbers is the number of repeat claims -- resulting in payments to the same customers for the same type of repairs from the same type of hailstorms. There are some areas of the nation's hail belt where homes have been reshingled two and three times during a 10-year period.

While a hailstorm usually strikes a relatively limited geographical area, there are parts of Texas, Oklahoma, Kansas and Nebraska where hailstorms average six strikes a year or more. Clearly, the same houses are exposed to these storms. They are likely to receive damage.

As a result, home insurance coverage in these regions has become expensive. As premiums rise, both insurers and their policyholders become concerned.

To help combat rising premiums, insurance companies look for ways to prevent future damage. They also look for ways to limit the amount of damage when losses occur.

Customers often look to lower their premiums -- often by raising their deductibles (the amount the customer pays for each claim). That can reduce the customer's insurance bill, but it also reduces the amount of the claim payment. The customer pays the deductible.

A better course -- because of its long-term implications -- is damage prevention and reduction. Prevention means eliminating the cause of loss -- not practical when it comes to hailstorms and roofs. Reduction means minimizing damage when a loss occurs.

For hailstorms, insurers believe the best way to minimize damage is use of roofing materials that better resist hail damage. Breakthroughs in technology and standardized testing are contributing new materials expected to more effectively resist hail damage.

Technology and testing
How do you define an impact-resistant roof? What kind of test will provide consumers with credible information upon which to make buying decisions? How much resistance do roofing materials lose as they age?

Despite research conducted over a number of years, it wasn't until 1996 that a testing standard (UL 2218) was developed to grade the impact resistance of roofing materials. This was a joint effort by the State Farm-supported Institute for Business and Home Safety (IBHS) and Underwriters Laboratories, Inc. (UL). The test uses four sizes of steel balls, ranging from one-and-one-quarter inches to two inches in diameter, to replicate four sizes of hailstones. These balls are dropped from various heights to replicate various speeds of impact. Damage is measured on a scale of 1 (least resistant) to 4 (most resistant).

State Farm began testing roofing materials against the UL standard in 1996 at its own in-house laboratory at company headquarters in Bloomington, Ill. Of about 100 materials tested, less than half emerged without damage at the minimum test levels.

In addition, State Farm researchers have experimented with a different test, shooting ice balls from a compressed-air gun. UL testers do not use this procedure because of the difficulty in maintaining consistent ice samples and velocities.

Other research continues at Texas Tech University, partially funded by State Farm. Dr. Milton Smith, professor of engineering, is studying the physical properties of hail and associated wind and temperature characteristics.

With the UL testing standard in place, State Farm hopes the competitive marketplace will encourage manufacturers to develop roofing that meets the highest impact resistance level ... and to market their products by selling that feature (much like auto manufacturers today promote safety features such as air bags to help sales).

As advanced materials are manufactured in greater quantities, prices should come down. That will help control the cost of insurance claims and stabilize premiums.

(See Roofing Materials box for description of the six styles available today.)

The Texas experiment
State insurance authorities in Texas are attacking the issue of hail damage by requiring premium discounts for consumers who install impact-resistant roofs. In January 1998, Insurance Commissioner Elton Bomer ordered homeowners insurance companies in the state to discount premiums up to 46 percent in some areas for policyholders who replace old roofs with certified impact-resistant roofs. All insurers subject to Texas rate regulations (such as State Farm Fire and Casualty Company) must offer the discounts.

" This is a revolutionary step for consumers, insurers and roofing manufacturers," Bomer said in his announcement. "Homeowners who install hail-resistant roofs will save money on their insurance and avoid the headache of replacing roofs after hailstorms."

The Texas regulator also said his program could "prevent hundreds of millions of dollars in hail damage and help lower insurance rates by giving property owners a financial incentive to buy roof coverings certified to be impact-resistant and hopefully to withstand the impact of hail stones."

Under Texas regulations, each area of the state is assigned a homeowners insurance discount for each of the four UL levels of impact resistance. Discounts apply to standard homeowners insurance policies and to those covering structures only.

For a homeowner in the highest-rated hail zone replacing a roof with a Level 4 (highest resistance) material, the discount would be 35 percent. (Discounts may vary among companies which operate in Texas without rate regulation, such as State Farm Lloyds.)

A Texas homeowner in the lowest-rated hail zone using a Level 1 roof would receive a 1 percent discount on a homeowners policy or 3 percent on structure-only policies.

(State Farm Fire and Casualty Company voluntarily provides discounts in Kansas, Oklahoma, New Mexico, Colorado, Wyoming, Montana, North and South Dakota, Nebraska, Minnesota, Iowa, Missouri, Arkansas, Wisconsin, Indiana, Kentucky, Tennessee, Illinois and Alberta, Canada.)

The real test -- costs
State Farm views the discount program as a promising approach to controlling the cost of insurance. If it works, both consumers and insurance companies will benefit.

The key factor in the Texas experiment is cost. These questions provide insight:

• Will consumer demand for stronger and more expensive materials increase and encourage production?
  
• Will the expense of replacing a roof with upgraded materials become low enough to entice consumers?
  
• Will hail-related claims fall enough to justify lower insurance prices?
  
• Do roofing contractors have disincentives for promoting roofs that need to be replaced less often?

Central to these cost questions is the upgrade issue.

Though it's obvious, it bears stating: No homeowner can be expected to replace an existing roof that is not damaged or worn.

So there are two realistic occasions to consider upgrades: when a house is being built and when it is under repair.

Depending on the product, the cost of going from standard to impact-resistant materials can be significant. And the added cost is borne by the consumer.

In the case of damage caused by an insured loss, insurance policies do not pay for upgrades, only replacement (this applies to all repairs and replacements). Insurance pays to replace a roof with similar materials, but not upgraded materials. If more expensive materials are used, the policyholder pays the difference.

At the time of this revision there are over 400 impact resistant roofing products are on the State Farm list of products qualifying for premium discounts. The majority are of these are rated as having a Class 4 impact resistance. There are very few products having Class 1 through 3 ratings being promoted in the impact resistant roofing market. Choices of qualified asphalt roofing products are limited but expected to grow soon. When this happens, we could experience a lowering of product cost in that market.

Roofing materials
The brochure Buying a new roof ... and getting your money's worth, produced by the National Roofing Contractors Association, describes six basic materials used in the manufacture of roofing materials:

Asphalt shingles -- Representing the overwhelming share of the U.S. residential market, asphalt shingles come in two types. Oldest style is organic, consisting of a cellulose-fiber (wood) base saturated with asphalt and coated with mineral granules. Dominating the market today is the fiberglass style, consisting of a fiberglass mat, top-and-bottom layers of asphalt, and mineral granules. Typically, fiberglass offers greater durability.

Wood shingles and shakes -- These are made from cedar, redwood, southern pine and other woods. Shingles are machine-sawn; shakes are hand-hewn. (Some local building codes limit their use because of fire resistance concerns.)

Tile -- Made of clay or concrete, tile is durable but fairly expensive. Because of its weight, a homeowner should verify the structure will support the load, if tile is replacing another type.

Slate -- Considered almost indestructible, slate is quarried in states such as Vermont, New York, Pennsylvania and Canada. Slate is more expensive than other materials and requires more skill and experience to apply.

Metal -- Previously perceived as a commercial roofing material, metal shingles are being made to simulate traditional house roof coverings. They are long-lasting, relatively light, fire-resistant, and effective look-alikes. They can be more vulnerable to cosmetic damage.

Synthetic -- These products simulate traditional roof coverings but do not necessarily have the same properties.

Roof systems
All roof systems have six basic components:

Roof structure -- Rafters and trusses that support the roof.

Deck/sheathing -- Boards or sheet material fastened to the roof rafters.

Underlayment -- A sheet of asphalt-saturated material that provides a second layer of protection for the roof deck.

Roof covering -- Exterior roofing materials (such as shingles) that protect the sheathing.

Drainage -- The ability to shed water, primarily a function of design (shape, slope, layout).

Flashing -- Sheet metal (usually) laid into the joints and valleys of a roof to prevent water seepage.

Finally, some new materials will cost more, even in mass production. This is evident in the new resins and urethane foams used in their construction. New shingles may also require more labor at installation. However, some impact-resistive, asphalt-based products will add as little as 10 to 15 percent to the cost.

Clearly, if impact-resistant roofs become widespread, everyone could benefit. Homeowners not only save money through the discounts, but they also reduce the hassle of recovering from storm damage. That helps insurers keep premiums as low as possible for customers. Roofers will have fewer maintenance problems and customer complaints.

Conclusion
The cost of insurance reflects the cost of paying claims. That's true for any type of insurance. When the cost of claims drives the cost of coverage to levels that become too much of a burden, loss prevention and loss mitigation offer the best, long-term solutions for everyone.

New roofing materials offer a major step forward in mitigation. More consumer demand will eventually lead to products that can help stabilize insurance costs. New technologies will emerge, new products will reach the market, and new opportunities will be created.