Fortified For Safer Living

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1 Fortified For Safer Living Module 2: The Impact of High-Winds on Property Damage and Insurance Claims In discussions about residential construction, builders often ask: What is the real advantage in conforming to the new building codes. When we build better and stronger, what s the evidence that it s really going to make a difference in the performance of property and in people s lives? In this module, we re going to look at some data and try to answer these questions. Case in Point: New Standards vs. Old After every major wind event, people are out there looking at the damage, looking at how buildings performed, and Hurricane Charlie was no exception. An example is found in the photos below. At left is a new building that happens to be a doctor s office and dentist s office, but it looks a lot like some of the houses in the area. It was built to the new codes, built with a metal roof, and had window protection and so forth. It is located in the heart of the area hit by Hurricane Charlie. Across the street from this building (photo above, right) was an older building that was not built to the new codes and ended up as a pile of rubble. We frequently see a lot of this anecdotal information, or what we would call anecdotal where you re looking at the relative difference between buildings and performance. And it s been very clear. We were able to go through even mobile home parks after Hurricane Charlie and consistently pick out 2008 IBHS or its affiliates, All Rights Reserved Module 2, Page 1

2 the homes that were built to the new standards versus those that were built before the high wind standards came into play. Insurance Claim Frequency: Older Homes vs. New We have also had an opportunity to look at loss information from a major insurer of a lot of properties, 5,000-some policies, in the Port Charlotte, Pianegonda, area affected by Hurricane Charlie (the strongest winds of Hurricane Charlie). And we looked at the frequency of claims as a function of the age of the homes. And you can see in the following chart that in the older homes there was about a 36% average claim rate. In other words, about 36% of the homes had enough damage to merit filing a claim. Now, we must consider, of course, that there weren t really that many old homes within this group of houses. But certainly there are indications throughout the state that if you go back into the 60s, when there was a lot of hurricane activity, people were, in fact, building a bit better. There wasn t the growth and the huge increase in number of properties being built that we saw in the 70s. Another thing that happened in the 70s was that plywood and oriented strandboard came on the market actually plywood at that point (oriented strandboard later as roof sheathing). So there was a major shift from using planking on the roof to using panel sheathing, and the attachment, at least in the early stages, was not nearly as good. So I think that helps to explain part of the increase in claims that we see in the mid- 70s when plywood first came out. An interesting thing to point out is that in 1995 in Florida this is a couple years after Hurricane Andrew went through the coastal regions statewide moved to using engineering-based design standards. These modern high-wind standards are the basis of today s approach to how you create a load path and connect a house together. It s interesting to me that it took another year after 1995 (when the engineering-based standards started being used) before we see a dramatic change and drop in the insurance losses. So in 1996 there was still a fairly large number of frequency of loss, whereas there is a remarkable drop in 2008 IBHS or its affiliates, All Rights Reserved Module 2, Page 2

3 the later years to about 18% of properties actually making claims. And I think, to me, coming out of this there are a couple messages. Building trade education and training. One: The adoption of the new high-wind standards made a difference. Two: There was an educational process taking place. And it probably took a year before the building inspectors and the builders really got on board with that change. Then one of the big changes that happened in 2002 when the Florida building code came into effect was, again, there was an educational process. Builders were required to take training to learn what was in the new code. Even though a lot of the structural stuff hadn t changed that much, the questions that people were asking changed a lot. Not only did the builders have required training, but every building inspector, building department architect, and engineer licensed to operate in Florida was required to take at least a four-hour course on the new building code. And having taught hundreds of those code classes I know that people were amazed at what they were supposed to be doing to build under the new code. The fact is that those were not significant changes. Yet, in many areas that adopted the better connection, the opening protection, for instance, it really has helped to reduce the losses. And if I were the insurance company I d be very interested in this information. Also, it s important for homeowners and people buying property that homes built to these higher standards are likely to be better homes. And what we re really doing with the Fortified Program is making sure that those standards are actually met. So we re trying to reinforce education and the code change process to be sure that the homeowner is in fact getting a high quality product. Insurance Data Shows Less Damage Done If we look a little bit more deeply into some of these statistics and look at a few more numbers pre-1996, we see that when a home had a claim, the average cost for the repairs was $24 per square foot. And the frequency was about 41 claims out of 100 policies in that period of time. Moving to newer homes, those built between 1996 and 2004, if you did have a claim, the cost of the claim dropped to about $14 a square foot. Now, this is due to a couple of factors. One: Homes were getting bigger. But, two: It is also an indication that the damage has lessened. Again, the chances of having a claim dropped dramatically and we went from 41 claims in 100 policies to 17 claims in 100 policies in the newer homes. If we can dig even a little bit more into this and start looking at 2008 IBHS or its affiliates, All Rights Reserved Module 2, Page 3

4 some things like roof cover damage and the damage to the home that may have put people out of their home for a while In the chart below we re looking at roof damage claims. There were a greater number of newer homes that had no roof damage or no roof cover damage at all 14% % of Total Claims % 51% 2 4% versus 4%. Some of that, particularly for shingles, could be related to the newness of the product. In other words, new shingles that haven t aged tend to do better than older shingles because of heat and UV deterioration. In terms of partial covering, there was a larger number of homes that had at least some damage to the roof cover 48% versus 2. But what s really remarkable is that in the older homes, 51% of those that had cover damage had to have the entire roof reroofed. However, in the newer homes, it was only 3, and when you actually had cover and roof deck damage that is a very significant difference. There were 25% of the older homes having roof sheathing loss and only 5% in the newer homes. We think that a certain part of that is due to the fact that up through 1998 in Florida, the standard building code allowed staples to be used to attach roof sheathing. In addition, the wind rating of the shingles changed in The Florida building code increased the wind-rating test from 60 miles per hour to 110 miles per hour. So there s a much better performance for the homes built after 2002 because we have also stepped up the quality of the roof cover. In the chart below, we re looking at the payments that were made for people who had to move out of their homes while remodeling took place. And the interesting thing here is that in the homes built after 1996 there was nobody who was out of their home for more than a month, whereas for homes built before 1996, about 9% of homeowners had to move out for some part of a month. And that s about the same percentage for homeowners in both the old and the new houses. However, in the older homes, 11% of the people were out for more than a month. 5% 33% 48% 14% Pre Building Code Category No Roof Damage Partial Covering Whole Covering Whole Covering with Decking 2008 IBHS or its affiliates, All Rights Reserved Module 2, Page 4

5 % Total Claims % 9% 51% 29% 9% 47% 44% Pre Building Code Category ALE 1 Month ALE < 1 Month No ALE No Interior Damage In both cases, homes sustained about the same amount had interior damage but homeowners didn t actually move out of the homes. A much larger percentage, 44%, of the homes that had claims in the post period had no interior damage at all. This data shows that when we build stronger and better, we have less interior damage and less chance of having an insurance claim. And the overall reductions are quite sizable IBHS or its affiliates, All Rights Reserved Module 2, Page 5