Navigating the Storm: Understanding the Factors Behind Rising Insurance Premiums in Minnesota
Insurance premiums are going through the roof! (Pun intended) Skyrocketing insurance premiums are all the talk in Minnesota these days. Everyone’s rates are going up by significant amounts. Mouths drop when insurance renewal notices are opened. Among the hardest hit are homeowner associations who in some cases are seeing 100% increases or more. That’s IF they can find a carrier who will write their policy! Insurance premiums are going through the roof, and yes roofs are a big part of the problem.
We Minnesotans are living the perfect storm, again, pun intended. Historically nasty weather and rapid economic inflation have combined to create an untenable situation. The reality is insurance companies are taking huge losses in Minnesota. That’s not the way it’s always been. Industry veterans will tell you that Minnesota was a very profitable state to do business in back in the 80’s and most of the 90’s. Property insurance was one of the best bargains around for the protection you paid for. Imagine annual premiums below $300 and $50 deductibles. Don’t believe it? Ask anyone over 60 years of age.
Then May 15 and May 30, 1998, happened. The Twin Cities were blasted by two large hailstorms which resulted in a large majority of homes and businesses being reroofed. Insurers, who had not seen anything quite like this in recent history, were very generous with submitted claims. Most insurance workers who experienced this era will tell you carriers were too generous.
In the next few decades, hailstorms continued to be frequent and volatile. The last straw came in 2022 with the May 19 hail and windstorm. A couple more events later in the summer added to the misery. State Farm reported in March of 2023 that Minnesota led the nation (by far) with nearly 800 million in hail losses in 2022. Texas was second at approximately $510. In comparison, neighbor Wisconsin came in at $191 million, which was good for 6th in the country. On August 11, 2023, the Twin Cities were delivered another huge blow with a hailstorm that went through the middle of Minneapolis and surrounding areas.
The result of all these storms? “Free” roofs have become an entitlement. Most people who needed to replace their aging roofs decided to wait until the next hailstorm. It evolved to where roofing contractors started pounding on peoples’ doors within minutes of a hail event, sporting official-looking hail maps in hand that purportedly documented one-inch hail falls in neighborhoods. Aggressive roofers used hard sell tactics to get people to sign contracts. The sales pitch was: “Allow me to represent you and I will fight your insurer to get you the roof you deserve.” The environment turned very contentious.
Soon, another “pandemic” called “neighboritis” struck the Twin Cities. Homeowners who were approved for new roofs quickly encouraged their neighbors to file a roof claim too. Door-knocking contractors contributed to the frenzy. Unscrupulous operators told everyone they had roof damage hoping to line their pockets. Eager homeowners, with dollar signs in their eyes (who doesn’t want to save thousands?), demanded inspections by adjusters. Many of these claims were denied which didn’t sit well with people. Policyholders blasted their agents: “Hey, how can I not have damage when everyone around me does?” they argued.
The latter question is a legitimate one but easily answered. Some homes had overhanging trees that blocked the hail. Others had either new or high-quality roofing materials that offered better protection. Finally, meteorologists will say that hail doesn’t evenly fall by zip code or even neighborhood. Like rain or snow, it can be very spotty. If you ask rural farmers, they’ll tell you that corn stalks are standing next to ones that have been beaten down by hail. Ever seen it rain across the street and not at your house? Have you driven out of heavy rain onto dry pavement? Weather is sporadic.
In other instances, homeowners had no legitimate damage and never should have gotten a roof replacement! Press insurance industry professionals and they will admit this. How does this happen? The reasons vary. Some insurance adjusters simply weren’t trained properly to detect damaging hail hits. In other instances, perhaps a steep pitch or simply laziness, a few homeowners got “street adjustments.” The adjuster never got up on the roof to make a thorough inspection of the shingles.
Hail losses weren’t the only culprit. Minnesota has ranked 7th in the nation for weather-related losses in recent years. The Insurance Institute ranked it 15th in 2021 for tornadoes. Minnesota was 9th in wildfires in 2021 as well. Very dry summers have been linked to more fires adding to the “perfect storm” environment.
Meanwhile, a whole different storm hit the world economy, mainly the COVID-19 Pandemic. Since then, we have been plagued with devastating supply chain issues. Labor and material costs soared. Soon, inflation, which hadn’t been an issue for decades, roared back with a vengeance. While things have gotten significantly better, there are lingering effects. Some of the problems were self-induced. Old-fashioned greed inflamed an already dire situation. Insurance adjusters report that the margins some contractors were charging, particularly on roofing were obscenely high. Adjusters, wanting to close files and keep the agent and customer happy agreed to pay the inflated costs.
So, given these facts, it’s apparent why insurance premiums are skyrocketing. You do the math. If your insurance premium is $3500 and your roof replacement costs $35,000, how long does it take a carrier to make that up? As any reasonable person can see, this is not a recipe for financial success long-term. Something had to give.
There have been other challenges. Finding skilled laborers who want to work is most contractors’ number one challenge. A roofing contractor dryly commented on the lopsided supply and demand of experienced workers: “It’s very hard to find good people who are skilled and want to work hard. At this rate, I will eventually be paid like a brain surgeon.” He was kidding of course but made his point. Rising labor costs, as well as increases in such basic materials as asphalt shingles, lumber, steel, and drywall, have been well chronicled.
Asphalt shingle manufacturers figured things out quickly. They began to change color lots more frequently which made it difficult to find new shingles that provided a reasonable match. Throw in warranty requirements, and it has been more difficult for insurers to pay for just one slope of the roof. They end up paying for a full roof replacement. These developments weren’t sustainable for carriers.
Historically, some insurers used this “opportunity” to keep rates low and buy market share, which provided homeowners with a buying option. Independent agents, who write coverage for several companies, report that this phenomenon is not occurring this time around. Everyone is increasing rates. The industry climate here in Minnesota isn’t as bad as Florida or California yet but the signs are worrisome for consumers.
Insurance companies haven’t stood still. A few insurers decided to no longer write personal property coverage in Minnesota. Others mandated moratoriums on new business. Other options include limiting coverage and implementing higher deductibles. The carriers who are still open for business are instituting several of these changes. As a veteran agent said recently: “The current situation is unprecedented. I have never seen anything like this in my career. What I do know is, the days of “free roofs” are over.”
Feeling overwhelmed by all the bad news? Lindstrom Restoration advises that you contact your insurance agent. There may be changes you can implement short term to lessen the financial pain. In the meantime, hang in there and hope that the weather doesn’t exert its wrath on Minnesota yet again. We’ll leave you with one positive. The very mild winter thus far has reduced the number of frozen pipe, and ice dam claims. At this point, we need all the help we can get. If you need an honest, ethical no-cost roof inspection give Lindstrom Restoration a call. If snow stays off the roof and there’s no frost we can come out and check out your roof and exterior.
Have you suffered a water damage or fire? Lindstrom can help you with that as well. Call us 24/7/365 at 763-544-8125