Depreciation of Labor to Arrive at Actual Cash Value—Alaska Says No
The Alaska Division of Insurance issued Bulletin B24-07, effective January 1, 2025, prohibiting the depreciation of labor in the calculation of Actual Cash Value (ACV) in property insurance policies. This bulletin mandates that any policy, including the depreciation of labor, must be amended via endorsement.
Key Points:
Depreciation of Labor: The bulletin addresses the unfair practice of depreciating labor costs in ACV calculations, which unfairly burdens the consumer and their repair contractor.
Objective of ACV: The goal is to restore the insured to the same financial position as before the loss, covering the cost to repair or replace with like-kind and quality materials, less material depreciation. Labor, however, does not depreciate in value.
Regulatory Mandate: From January 1, 2025, new or renewing policies must exclude labor depreciation from ACV calculations.
One certainly has to wonder why other departments of insurance are not commenting on this important issue.
Some insurance carriers are trying to compete by offering policies with much worse terms regarding actual cash value and are essentially selling a reimbursement policy rather than a replacement cost policy. Insurance departments should prevent these carriers from selling these policies as replacement cost policies and warn consumers of the substantial upfront out-of-pocket costs they will incur because of this bait and switch.
Farmers Insurance is the worst offender, as noted in The Insurance Coverage Gap Worsens—Farmers Policy Changes Approved, and Farmers Sells a Policy that Is Far Worse than Its Competitors – Review of the Farmers “Next Generation” Homeowner’s Policy, Part 3: Overhead and Profit.
Insurance regulators should not approve these form policies for numerous reasons. One reason is that the average consumer is duped into thinking that Farmers is selling the same policy for a lesser price when, in fact, it sells an inferior product that almost nobody would appreciate that this is happening at the point of sale unless they practiced in the property insurance field. Instead, the Farmers agents wrongly compete on price, knowingly selling something that offers less without fully telling customers, “What we are selling you is a Swiss cheese policy that is not as good as those sold by other companies. But it is cheaper!”
How many people want to knowingly have the cheap brain or cancer surgeon? At least they should be warned in advance.
Departments of insurance and the NAIC consumer committee should stop these practices. Alaska and other insurance departments that are standing up to these chiseling claims practices and selling strategies should be congratulated for leveling the playing field for fair competition between carriers and honest trade practices towards policyholders.
Thought For The Day
Competition, with little protection of the consumer from the ruthless and the unscrupulous, means less prosperity for everyone.
—Franklin D. Roosevelt
