Policy Conditions – Loss Settlement Changes Are Coming!

Last week, we alerted agents to a few legislative changes already in effect. We have also begun work on another important change to the Policy Conditions that determine how covered losses are settled. This change comes with significant impacts to agents and their policyholders.

The shift: establishing how a loss will be settled when a policy is issued, not when a claim is made

  • 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.
  • New law says the type of loss settlement, RCV or ACV, is determined at the time a policy is issued.
When will this change take place?
The change will be applied to all new and renewal residential policies issued on or after January 1, 2020.

Why this is great news for policyholders

  • Knowing how their loss will be settled up front brings peace of mind. 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.
  • This change will reduce the chance of an unpleasant surprise. 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. Thankfully, 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.
New process, new policy forms & endorsements
  • 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.
What’s next?
Training will be available to agents beginning this fall. We will host webinars, publish job aids, and continue to regularly communicate. By early November, a twia.org webpage dedicated to these changes will be live so agents and their clients can check in on our progress. In the meantime, we are here to answer your questions, just give us a call at (800) 788-8247 or email Agent Services at agentservices@twia.org.