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TWIA: Increased Limit of Liability Adjustments Through ABC Endorsement

This year’s automatic adjustments associated with the Adjusted Building Cost (ABC) endorsement (TWIA-220) will be greater than they have been in the recent past. From 2018-2020, annual automatic adjustments to the dwelling limit of liability remained below 1%; this year, they will be around 2% (varying by location).

The ABC endorsement, commonly referred to as the “inflation guard” endorsement, is a standard insurance industry practice. It is designed to help ensure the limit of liability amount keeps pace with increases to local building costs and is automatically included with all TWIA policies. It does not guarantee the dwelling is adequately insured for its full replacement cost.

How This Affects Policyholders
This year’s increase will affect all residential renewal policies with an effective date on or after September 1, 2021.

The automatic adjustments to the limit of liability (listed under Coverage A) will be reflected in the renewal packets sent to policyholders. Those who wish to reinstate their previous year’s limit of liability may do so by contacting you, their agent. As a reminder, lowering the limit of liability may affect eligibility for replacement cost coverage.

Please discuss this year’s automatic adjustment and limits of liability with your renewing policyholders to ensure they have adequate coverage. Renewal offers are available for agents to review in Policy Center 60 days prior to the renewal date.

Why Automatic Adjustments Are Greater This Year – And How TWIA Is Responding
The annual automatic adjustments associated with the ABC endorsement are tied to the Marshall & Swift/Boeckh (MSB) building cost index. This year, the entire country has seen a large increase in costs of lumber, raw materials, and labor. Building costs in our coverage area increased in a range of 4.4% to 6.2%, depending on ZIP code.

To help stabilize increases to the automatic adjustments and reduce their impact on policyholders, TWIA is choosing to average the last two years’ increases together when calculating 2021 automatic adjustments.

Going forward, TWIA will continue to average the last two years’ increases when calculating annual automatic adjustments. These automatic adjustments will take effect September 1 of each year.

If you have any questions or concerns about the ABC endorsement, our Agent Services team is here to help. Contact us by emailing [email protected] or calling (800) 788-8247