Ramstad: More storms, higher costs pose a threat to Minnesotans and property insurers

HOLMES CITY, Minn. — I’d never heard of a haboob until about two years ago when one struck lakes and towns around Alexandria and ripped the roof off Blade’s Store, which houses the post office for Holmes City and sells bait and other provisions for residents and visitors of Grant and Blackwell lakes.

A haboob is an intense windstorm, usually associated with dry, desert areas. Indeed, there was a lot of dust in the one that cut through west-central Minnesota on May 12, 2022.

A couple months later, I called Julie Rice, co-owner of Blade’s, for a feature story about what to do when a natural disaster hits your business. She recalled watching a 6-foot wall of water race across Grant Lake while she got her mother and an employee into the basement of the store.

That article mentioned one other unusual development: Within weeks of the disaster, both her longtime insurance agent and her claims adjuster retired.

“It only went downhill from there,” Rice said last month when I visited Blade’s Store. A bald eagle perched atop a nearby utility pole as we looked at exterior repairs.

Minnesotans who experience disasters — and the insurers who help them — are in a complicated moment. It’s not a crisis of the kind happening in California, Texas or, worst of all, Florida, where most residents now buy homeowner’s coverage from the state government. But neither are things going smoothly.

We may be in the proverbial pot of water that’s slowly heating up.

“That’s a fair assessment,” said Aaron Cocking, chief executive of the Insurance Federation of Minnesota, a trade group of insurers.

The increasing frequency of natural disasters, coupled with the surging cost of rebuilding, is hurting insurers nationwide. In a stunning front-page story last month, the Wall Street Journal reported the scale of a problem that is spiraling like this: Hit by growing losses from claim costs, insurers raise premiums, leading consumers to cut back on coverage or legislators to impose limits on insurers, leading insurers to pull out of high-risk places, leading to more costs for consumers.

In Minnesota, where property insurance prices are surpassed only by states on the coasts, the spiral is playing out slightly differently. State law permits regulators to call for a public hearing whenever an insurance carrier raises premiums 25% or more in a year, a prospect that tends to lead insurers to stay below that threshold.

“There’s a risk of having to divulge some proprietary information, so companies are generally unwilling to go through that process,” Cocking said. “As such, carriers are having to take less rate than is actuarially needed.”

Property insurers in the state did raise premiums and put more restrictions on coverage last year after experiencing a very difficult 2022. For every $1 insurers collected from homeowner premiums that year, they paid out $1.92 in claims. That was the most of four consecutive years in which claim payouts exceeded premium collections in Minnesota, according the American Property Casualty Insurance Association.

The state experienced 387 major hail events in 2022, behind only Texas and Nebraska, and 77 tornadoes, behind only Mississippi, Texas and Alabama. Combined damages exceeded $5 billion. Three weeks after the haboob hit Blade’s Store, a tornado damaged more than 100 structures in Forada, 12 miles away.

For the rest of summer, claims adjusters and contractors worked extra-long days to get Douglas County residents back on their feet. Roofing contractors told Rice it would be weeks or months before they could get a roof back on her two-story building, the top floor of which is her home.

In late September, a roofing contractor called to tell her a crew was available. She didn’t have a damage estimate to negotiate costs, however. The transfer to a second adjuster wasn’t smooth. For weeks, the new adjuster asked for photos and for information Rice thought had been collected by the one who retired.

In October, an adjuster arrived for an in-person visit. Within a week, Rice received a $158,000 damage estimate from an Iowa reinsurance firm. Most elements, however, were far below what she was hearing from contractors or what she had already paid. For instance, the insurance firm estimated $400 to clean the building, but Rice had already paid a damage restoration company nearly ten times that amount.

The new roof did get put on before winter hit in 2022. However, the interior fix-up and siding replacement took most of 2023. To cut costs, Rice and her partner did a lot of the interior work themselves.

“We ended up being able to pay for the complete siding job with enough insurance money that we didn’t have to get a loan” she said.

Her contractor was there until “the gold fall weather kicked in” last year. “That was when I finally had the peace of mind that we’re not going to have to go into debt,” Rice said.