According to the NOAA (National Oceanic and Atmospheric Administration), there were 4,610 major hailstorms in 2018. Just in the last year, the five states with the highest number of hail events included Texas, Kansas, Colorado, Nebraska and South Dakota. Other states not far behind include Oklahoma, Illinois and Wyoming. Further down the list are states including Missouri, Minnesota, Indiana and Ohio. Many of these states are in the area of severe weather events often called “hail alley”. Records provided by Verisk Insurance Solutions reported over ten million properties affected by damaging hail events in 2017. In losses to State Farm Insurance alone, the damage to policyholders exceeded two and a half billion dollars.
All of these hail losses have resulted in changes in the insurance being offered to property owners, especially those operating self storage facilities, due to the size and square footage of their roof areas. Business owners will see the changes in the form of endorsements which limit the hail coverage (“Cosmetic Loss Exclusions”) as well as higher deductibles and increased premiums. In certain states, especially those states hardest hit by these storms, a self storage owner may find carriers not even willing to quote hail coverage at all. It is important for self storage owners to understand the insurance coverage they have, or don’t have, for hail damage, since a lack of coverage may result in significant financial risk for an operator that endures a severe storm.
To start, Owners must read and understand the insurance they are getting to cover these hail risks. Typical language an operator may find may specify that the insurer will not pay for cosmetic damage to the roof caused by hail as long as the roof continues to “function as a barrier to the elements”. The cosmetic loss endorsement is an option that allows the carrier to continue to ensure the risk for severe wind and hail damage while avoiding the entire coverage risk. Since this language is subject to interpretation, many owners find themselves at odds with their insurance companies when there is a storm and the insurance company is unwilling to pay when the roof has not sustained structural damage that impacts its operation. To obtain better coverage, an owner may need to withstand a higher deductible, therefore incurring the first dollars of repairs to a roof that has been damaged by a storm when the owner seeks coverage.
Next, an owner seeking to protect itself can improve its chances in underwriting by demonstrating the use of better-quality roofing materials, especially materials using impact resistant coverings. Light gauge metal roof or single ply roofs are more susceptible to hail damage than other materials. Further, ongoing and regular maintenance checks and repair work can be taken into account during underwriting to demonstrate the care to maintain the roofs to lessen the impact of wind or hail damage that may occur. Lastly, as storm risks elevate, some property owners are investing in protective screens that can be installed over roofs that act as netting to protect the roofs from large hail impact. All of these approaches can help a property owner reduce its cost of premium coverage, reduce its level of deductibles and possibly increase its coverage by demonstrating an overall reduced risk to the insurance carrier.
Unfortunately, owners of older properties with long term maintenance challenges may find it even more difficult to obtain insurance coverage for these types of storm risks. In those cases, it is even more important for these business owners to consider these affirmative approaches to reducing the risk of damage and to work with their insurance agents and carriers to create solutions to hopefully reduce their financial risks from these severe weather events.
Many thanks to Mike Schofield, President and CEO of Minico Insurance, for contributing to this article.