Will ACV Policies Change Roofing Forever?

By Mike Coday •  Updated: 10/21/23 •  11 min read

Change Is In The Air

According to Richard Healy, there’s three things we can always count on…

#1 Change happens.
#2 Change is always good for someone.
#3 Change is always bad for someone.

Quick Summary

  1. Inevitability of Change: The author starts by acknowledging that change is constant and has varying impacts, being beneficial for some and detrimental for others.
  2. ACV Policies and Insurance Companies: Insurance companies favor ACV policies as they are cheaper and limit the company’s financial exposure over time. These policies are easier to sell, especially to price-sensitive customers, ensuring steady revenue for the insurer.
  3. Risk Transfer and Perception: Insurance is fundamentally about transferring risk from the individual to the insurance company. However, there’s a disconnect between consumer expectations and the realities of ACV policies, leading to shock when payouts don’t cover full replacement costs.
  4. Public Relations Risks: The author points out that when insurers fail to meet customer expectations, especially in claims related to ACV policies, it poses a significant PR risk. This dissatisfaction can influence customers to switch to RCV policies post-claim.
  5. Comparison with Balloon Notes: Drawing a parallel with the financial sector, ACV policies are compared to Balloon Notes, which had short-term benefits but led to widespread negative consequences, highlighting that products failing to meet customer expectations can be detrimental to business.
  6. Predicting Industry Changes: The article predicts a shift in the insurance market, with companies potentially moving towards more ACV policies. However, the need for roofing won’t disappear, and customers will eventually seek coverage that meets their needs, even if it means switching companies.
  7. Sustainability of the RCV Model: Despite market fluctuations, the author argues that RCV policies won’t become obsolete. They align with the foundational promise of insurance – making the customer whole post-loss, which is ingrained in the consumer’s perception of insurance brands.
  8. Brand and Reputation Risks: Altering the fundamental promise of insurance coverage poses a risk to company reputations. The article suggests that moving away from the trusted RCV model could be a risky strategy for insurance companies known for reliable replacement coverage.
  9. Future of Premiums and Policies: The author foresees a rise in premiums to maintain the RCV model’s viability, emphasizing that insurance companies will continue to seek balance between cost-cutting and customer retention.
  10. Adapting to Change: The article concludes by affirming the necessity of adaptation in the face of industry changes. It encourages leveraging upcoming changes for new opportunities, suggesting that while the methods may evolve, the demand for roofing and the essence of insurance are not going away.

Think about the ACV policy from the standpoint of an insurance company…

Why would they want to sell ACV policies?

I think it is easier for their agents to sell the ACV policy because it is cheaper than RCV. A certain segment of the population is extremely price sensitive. Price always matters.

An ACV policy increasingly limits financial exposure over time for the insurer due to depreciation while maintaining a steady, recurring revenue stream. In other words, an ACV claim paid ten years down the road is less expensive than an ACV claim paid in year one of the policy. Profit always matters.

However, I would like to submit that reputation matters too. Publicity matters.

Risk Transfer

The reason why people buy insurance is to protect themselves by transferring the risk of loss to an insurance company.

Premiums are carefully created by actuaries who spread the risk over a pool of people and factor in several different risk variables because insurance companies need to make a profit to stay in business.

If you live in a high wind, hail or hurricane area, you can expect to pay more because you are a bigger risk.

By the way, the same is true when buying health or life insurance… if you are overweight or you smoke, your risk is higher and you’ll likely pay higher premiums.

Perception of Insurance

People believe insurance will cover whatever happens.

They’ve paid their premiums faithfully for years. They finally had a loss. They expect to get paid. After all, that’s what insurance is for, right?

People with ACV policies are often shocked when their check won’t replace their loss. They’ve had a 20 year roof for 10 years. Half the money they need to get a new roof has been deducted due to depreciation.

The risk of loss is increasingly transferred back to the insured in exchange for lower premiums.

Here’s the problem with transferring the risk back to an insured who is still paying premiums long after they’ve forgotten what their agent told them about the cheaper policy… they are sincerely shocked!

I know because I’ve seen their faces when they get the news.

Sure, there’s a few people who will remember something about buying a cheaper policy, but most are sincerely shocked.

The Public Relations Angle

When the insured can’t afford to replace what was lost with an ACV policy, that’s a public relations (PR) risk for the insurance company.

Even the educated consumer who anticipates only getting paid a portion of replacement cost is left with a bad taste in their mouth after the claim is settled. It just doesn’t sit well… especially when the depreciation deduction is heavy.

Over the years, many people I know who found out they had an ACV policy after a storm were the first to switch back to RCV after the claim was paid.

[Tweet “Nobody wants to pay for insurance that doesn’t do what you want it to do.”]

Remember Balloon Notes

Think of an ACV policy like the Balloon Notes mortgage brokers were writing before the housing market crashed in 2008.

I’m sure the vast majority of brokers were honest and upfront about the ticking time bomb in their loans. Actually, they had to be if the Truth in Lending Act applied, but that didn’t stop people from crying foul when those loans started exploding all over the place.

There were lawsuits and federal relief programs popping up everywhere.

Balloon Notes are a legitimate, legal financial tool. However, they turned out to be bad business because people get a home loan for the sole purpose of owning a home.

Similarly, people buy homeowner’s insurance so they can fix their home when bad things happen.

If what you sell doesn’t do what people thought they bought, you’re selling a product that won’t keep you in business.

Change Is Coming

There’s change coming I’m sure, but I see it more as a changing of the guard.

One company will try to change their product emphasis to higher margin policies in order to survive in the short-term. When the PR hit comes after a claim, another company will come along and take their customers.

I personally see the ACV policy as a ticking time bomb where the explosion in lost recurring revenue only gets bigger with each passing year.

I Could Be Wrong

Even if I’m wrong and the whole market moves to ACV, the fact remains that people will still have to replace their roofs.

Hail won’t stop falling.

Hurricanes won’t stop roaring.

Roofs will eventually fail inspection when the home is put up for sale. Leaks will still happen after a big rain. Shingles will blow off. Roofs will get old.

The business of roofing will not go away.

Even when a client has spent their first check and can no longer get their depreciation, they’ll still buy a new roof when they need it.

They may be able to postpone the purchase for a little while, but sooner or later they’ll need a roof. There’s only so much time they can buy before they face the inevitable purchase.

If every new roof in America was purchased using funds from an ACV claim starting tomorrow, it would not stop roofing sales – it would only create a temporary buffer of time before the next new roof was purchased.

Once that pipeline or buffer becomes full, roofing sales would be back at full strength because you cannot permanently delay the inevitable.

Some Things Never Change

Insurance claims will not go away because the entire business model is built on selling a product that makes people whole after they’ve suffered a loss.

If the product insurance companies sell quits doing what the consumer believes they are buying, they will struggle to stay in business.

Unless they convince America that the purpose of insurance is something other than what the industry has spent the last 100 years molding into our minds… namely, you buy insurance to replace what you can’t (or would rather not) replace yourself, I don’t believe the RCV Insurance policy will go away.

Destroy The Brand

The feature of Replacement – reliable, trusted, faithful replacement – has been burned into the fabric of the insurance brands we know, love and trust.

If you’ll imagine for a second right now your favorite insurance company and their slogan or jingle, does their brand make you believe that they are in the business of replacement? Of course, it does!

That’s why even the best agents who ethically sell an ACV policy are not immune to serious complaints after a claim. They know it too. That’s why many agents buy insurance on themselves to protect against these claims.

For this reason, I believe that RCV insurance premiums will continue to rise. Insurance companies can’t afford to destroy the brand they’ve worked so hard to build. Furthermore, they’ll be granted price increases when they are fair and reasonable – and because those increases are needed to sustain the business model of replacement.

My guess is that anybody who tells you that ACV policies are the wave of the future is probably not in line with the C-Level executive branch of the insurance company they’re talking about.

Insurance companies are in business to make a profit. Higher premiums are not a bad thing for them. They are generally good in my opinion because it takes a certain margin to stay in business.

As the risk of loss goes up, expect premiums to go up right along with them.

They are in the business of selling reliable, trusted, faithful replacement policies. Changing the brand now would be extremely risky – and insurance companies are adverse to risk. It is against their nature.

Change Is Good

Insurance is good.

Profits are good.

Change can be good too if you can figure out how to position yourself before the change arrives. I don’t personally see RCV insurance going away, but there are changes coming.

If you can see change coming, that’s your opportunity – get in the path where it will favor you the most.

Personally, I believe there may be some companies that try to push ACV policies more in the near future to stave off competition and temporarily increase profits. I don’t see it happening industry-wide though.

I don’t believe they can permanently sustain a business model built on ACV policy revenues because that product goes against the brand they’ve spent long years developing.

Advertising your brand as X and selling Y is not sustainable for any business.

Those that do will find their competition coming in behind them to write the RCV policies when their customer base inevitably becomes disillusioned.

Premiums will continue to go up and insurance companies will continue to seek cost-cutting measures they can reliably implement without sacrificing customer retention.

Preferred Contractors

Loyalty programs and preferred contractor vendors are a vehicle that has been tested, re-tested, and withdrawn many times over the years. I’m not against them at all. You should leverage this opportunity if you get it, but I see these programs through the scope of time for what they really are.

These programs continue to fail because insurance companies make the mistake of believing contractor’s will be as old and reliable as they are. They aren’t and never will be.

The preferred contractor goes out of business and the old insurance company is left holding the bag.

Profits are good for the insurance company… and they are equally good for the contractor too. It is hard to depress or artificially deflate the fair market value of a contractor’s work without suffering unintended consequences later.

I’m absolutely sure that change is coming, but I don’t see roofing sales going away anytime soon. As a salesperson, you’ll have to change to survive. That’s true of any business though.

Learn to leverage the changes.

Look for your opportunities.

Keep your head up.


NOTE: Everything I’ve written here is my opinion only – for entertainment purposes. You should take it with a grain of salt. Examine my thoughts against your own beliefs and contact me if you have a different opinion.

Mike Coday

Mike started selling roofs in '95 while working as a youth pastor at a small church in North Texas. A decade later he transitioned to speaking at industry conferences and training outside sales teams. Today, he works exclusively as the premier consultant to roofing company owners who are driven for growth.