When we first published this article on the "new" Texas law that went into effect in September, 2019 there was a lot of chatter about roofing contractors, deductible payments, and insurance fraud. Since then, a lot has changed about wind & hail deductibles here in Texas. The Texas law requiring you to pay you deductible hasn't changed, but how the insurance companies handle this has. Especially if you live in the North Texas counties of Tarrant, Dallas, Denton, Collin, and Rockwall.
Our friend Tim lives in Denton County north of Dallas-Ft Worth. He purchased a home two years ago and this spring he was hit with a hail storm that was going to require more than a simple roof repair. He was going to have to file a claim with his insurance provider to have his roof replaced. He was approached by several roofing contractors to do his replacement as part of his covered claim. He got conflicting information on what his out of pocket costs would be.
This is not an uncommon event. Unfortunately, many in the roofing industry have found creative ways to reduce the deductible cost that Texas homeowners have to pay. The downside of those unethical practices has caused the insurance providers to change how they evaluate property insurance claims. These changes have made it significantly more difficult for your roofer to skirt around collecting your applicable deductible payment. They have done this with significantly increased deductibles in insurance claims along with changing how they release final claim settlement claim checks.
While the practice of not collecting deductibles has never been contractually legal , it happened. And many Texas homeowners have been all too glad to go along with it. Texas Insurance Code, statute Chapter 707.002, about requiring deductibles to be paid went into effect on September 1, 2019 was put in place in an attempt to prohibit the practice of roofing contractors not requiring payment of property insurance deductibles on claims. Tim wanted to know specifics of the law and what he needed to do.
What Is Texas Insurance Code Chapter 707.002?
This law, which started as House Bill 2102, was passed by both Chambers of the Texas Legislature in 2019 and provided teeth to insurance companies trying to enforce Texans to pay deductibles. The law provides that it is now a violation if a contractor does not collect the contractual deductible during a repair or replacement involving an insurance claim. This provision kicks in for any of the following.
- waives
- pays for
- rebates
- absorbs
- offsets
- credits
- otherwise assisting the insured in avoiding a monetary payment
Violations of this law are classified as a Class B misdemeanor. This means that you could actually serve up to 180 days in a county jail and/or pay a fine up to $2,000. This judgement is applicable to both the contractor or the insured.
Has The Law Changed Anything?
When the law was first put into effect, many roofing contractors were at least marginally scared to violate the law not knowing how it would be enforced. They were quick to find installment plan contracts and financing arrangements that would help homeowners fund the deductible. As time wore on, many insured people began to ask about getting the deductible waived. Especially so as the less ethical roofers who operate only when major storms appear and then disappear were quick to ignore the need for the payment of insurance deductibles.
Tim got it. We get it. Roofs are really expensive and deductible payments are expensive. No one wanted to pay the insurance deductible when they are dealing with a roof replacement. Especially in this economy. However, the homeowners insurance companies got wise that roofing companies and homeowners were trying to skirt the law. Tim was pondering the law and everything that he has seen change on his homeowners insurance policy terms.
Negative Effects of Deductible Waiving
Let's do some quick math. It's easy to understand that there are at least 50,000 hail claims per year in North Texas alone. With 8,000,000 people here and the number of storms that roll through in both the spring and fall, it feels like claims never stop. If we assume that the average home value is $350,000, that would make a One Percent Deductible $3,500.
If all of those 50,000 claims have a waived deductible or $3,500 the insurance company must pay out an extra $175,000,000 in claim payments on hail claims for North Texas property insurance policies alone. For those uncomfortable with that many commas, that is $175 MILLION dollars. Do you really think that the insurance companies are not going to pass those costs back on to the consumer?
We make this statement of extra claim costs because deductible eater roofers are not giving you this money out of their own pockets when they waive deductibles. They have to make a profit as well to feed their own families. So claims get inflated and payment of deductibles gets waived while the homeowners are not really thinking about it.
Fast forward to 2023 and your home insurance renewal comes in the mail and the price has shot up 40% or more, minimum deductibles are being raised beyond one percent, and your replacement cost roof settlement has been removed from your policy. As more and more insurance companies either completely exit the state or quit offering new policies, it means that your ability to secure alternate coverage goes out the window and your left with a GINORMOUS bill.
Ok! Ok! Enough doom and gloom.
How Do I Stay Legal?
Part of the provisions that came with this policy change, included a provision to the Texas Insurance Code that requires "reasonable proof" of payment of that insurance policy deductible. Proof of payment includes a cancelled check, a photocopy of a money order receipts, cancelled cashier's check, a credit card receipt, credit card statement, or any other similar proof of payment. Simple enough, right? The claims adjusters are now forcing the insurance policyholder to show this proof to get their final claim payout check.
How Does This Benefit Me?
The first question that Texas homeowners like Tim always want to know is how does this law benefit me. And it's our first thought as well. The reality is that you will now be forced to pay that deductible you have been avoiding. So how does this law actually benefit you?
- If a contractor or roofer offers to cover your deductible, that means that they are willing to commit fraud that can land them in jail. Should you trust them with the work to your largest assets? I can't say that I would. Legitimate roofers don't do shoddy repairs and cut corners. They are the ones you want to work with.
- Texas Home Insurance companies may finally quit raising minimum deductible levels. The companies have continued to raise those requirements in an attempt to eliminate your ability to not pay knowing that there was a ceiling to how much could be written off. This particular item is incredibly important right now if you own property in North Texas or Houston.
- Premium increases should be less dramatic over time. One of the reasons that we have seen massive premium increases on home insurance particularly, is that people make roof claims frequently because there was no material cost out of their pocket. We've said this for a while and it hasn't slowed down and only gotten worse. Where does it stop? Seriously?
As Texas homeowners begin to navigate this process along with home insurance renewals, it is important to have clarity in expectations. Not rendering payment of Insurance Deductible on your hail claim has always been fraud, but now that activity can come with a extra penalty if the state enforces the law. While you can likely get away with business as usual with waiving of deductibles, is it worth it given all of the chaos in the home insurance marketplace today?