Essential Information:
- TWIA’s automatic Adjusted Building Cost (ABC) endorsement increases a renewing policy’s coverage amount to keep pace with building cost increases.
- Inflation and global supply chain issues have significantly increased construction costs.
- Starting September 15, your constituents renewing their residential TWIA policies will see coverage level and premium increases.
- Policyholders don’t have to accept the coverage increase. We encourage policyholders to talk to their agent about the right level of coverage for their property.
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Greetings:
In September, TWIA will implement an annual update to the construction cost factors on our Adjusted Building Cost (ABC) Endorsement.
What is Changing?
The ABC Endorsement helps ensure TWIA policy limits keep pace with local building and labor costs by increasing the dwelling limits at each renewal. The endorsement only applies to residential policies and is automatically applied to the policy. Policyholders are not required to accept the automatic increase at renewal and can work with their agent to select an appropriate amount of coverage.
TWIA started reintroducing building cost adjustments after taking a pause following Hurricane Harvey. We implemented updated ABC factors in September 2021 based on a two-year average increase in construction costs with the intent to lessen the impact on policyholders. Due to sharply rising inflation since last year, the ABC factors have increased to between 10.4% and 11.6%, depending on location.
Impact on Policyholders
Policyholders will see an increase in their coverage, and a corresponding increase in their premium, on their TWIA policy renewal notice. We are asking agents and policyholders to discuss coverage needs prior to renewing their TWIA policy.
Even though policyholders are not required to accept the updated limits, some TWIA policyholders may need to increase coverage to maintain replacement cost coverage. To qualify for replacement cost coverage with TWIA, policy limits are required to meet a threshold of 80% insurance to value on the effective date of the policy.
The building cost factors applied by the endorsement are general averages and cannot replace a detailed review of coverage needs performed by a licensed agent. Policyholders should discuss their coverage needs with their insurance agent when renewing their policies.
The updates will be implemented on renewing residential policies effective September 15. Agents will begin receiving renewal notices reflecting the revised coverage limits around July 15 (60 days out). Policyholders' renewal notices are issued 35 days in advance.
Is This a Rate Increase?
It is important to remember that the ABC factor increase is not the same as a rate increase. In addition to being voluntary, any policyholder who accepts the updated limits will receive more insurance coverage in exchange for the higher premium amount. The ABC Endorsement and a plain-language explanatory page are included in the policy packet sent to each policyholder.
We understand that consumers currently face unwelcome price increases for many products and services. This update to ABC factors is necessary to help policyholders maintain coverage that keeps pace with inflation. We are planning outreach to ensure transparency on this change, including communications to policyholders, insurance agents, and other stakeholders.
TWIA staff is available to discuss any concerns you may have about this issue. Should you have any questions, please contact me at JArmstrong@twia.org or (512) 637-4031.
Sincerely,
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