The Texas Windstorm Insurance Association is alerting agents about an important, upcoming change to the policy conditions that determine how covered losses are settled.
Current law says the type of loss settlement — replacement cost value (RCV) vs. actual cash value (ACV) — is determined at the time a claim is made.
The new law, to be applied to all new and renewal residential policies issued on or after Jan. 1, 2020, says the type of loss settlement, RCV or ACV, is determined at the time a policy is issued.
TWIA noted there can be a big difference between the replacement cost and the actual cash value of a property. Determining if insurance to value requirements are met at the time of policy issuance ensures that going into a claim, all parties are aware of whether or not their claim will be settled at replacement cost.
The law requires TWIA policies to be insured at 80% or more of the replacement cost value of the property to qualify for replacement cost coverage. Most policyholders already meet this threshold. However, sometimes a policy is insured right at the 80% threshold when it is first issued, and over time, dips below for a variety of reasons. Unfortunately, in the past this meant after a claim, the loss was settled for the actual cash value which was a significantly lower claim payment than the replacement cost. The new law prevents this scenario from happening.
TWIA’s new default policy form will be an ACV policy, and a replacement cost endorsement will be automatically applied to the risk item if its percentage of insurance-to-value is 80% or higher. The two new RCV endorsements are:
TWIA 802 Endorsement: provides RCV coverage A (dwelling)
TWIA 804 Endorsement: provides RCV coverage A (dwelling) with Actual Cash Value (ACV) coverage for roof coverings if ACV Roof is selected or applied by underwriting. In other words, TWIA 804 provides RCV coverage for the structure but not the roof.
Training on the changes will be available to agents beginning this fall.
Source: TWIA
Topics Catastrophe Natural Disasters Carriers Texas Windstorm
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