Homeowners facing higher insurance cost
Homeowners may expect to see an increase in premiums as a repercussion from state storm damage claims, flooding and lingering effects of Sept. 11.
Premiums may increase in a range from 20 percent to 100 percent, area agents reported.
"I've heard everybody is taking a rate increase," said Kirk Larson Agency with American Family, Pequot Lakes.
The Minnesota Department of Commerce reports almost all insurance companies in the state are raising rates this year. The commerce department scrutinizes all rate increases of 25 percent or more to with a goal of making sure companies are not taking unfair advantage of consumers.
In the past five years the state has been hit with claims from tornadoes, floods and high winds and the commerce department stated insurance companies have not been charging enough to cover the unexpected losses.
Larson said insurance agents have paid out more for recent claims than in many years in the past.
"That's really made a difference and increases in home construction and home repair have gone up and insurers costs have gone up," Larson said.
The state commerce department lists additional factors such as the dramatic increase in the cost of homes and the rise in reinsurance rates. Reinsurance companies help insurance companies pay for catastrophic losses and those increases are passed on to the customer, the commerce department reported.
Investments have hurt the companies too, specifically related to both claims from Sept. 11 and the subsequent fallout in the stock market.
But homeowners have options to combat higher premiums by raising deductibles. Larson said a home with a $100,000 policy and an annual premium of $462 with a $250 deductible could keep their premium about the same with a $500 deductible.
Pam Jager, a member of the family-owned Nisswa Insurance Agency, agreed homeowners are looking at deductibles to ease the increase. Jager said most of her customers read about the coming increase and were prepared for it. Jager said many of the customers have already been notified about increases. Larson expects more policy holders to see the increase in December.
"Sept. 11 raised the cost for doing business for all insurance companies," Jager said.
Larson said the stock market and Sept. 11 is an issue as many large companies invest in the market as well. But he said the national climate is just part of the reason homeowners will pay more for insurance.
"I would say that is very secondary to the storm losses and the overall price versus coverage in the home market," Larson said. "The money coming in versus the money going out is the bigger factor."
The climb in insurance premiums is largely isolated to the homeowner market and not across the board in terms of insurance, Larson said.
Before renters say this will not affect them they should keep in mind they are not immune as landlords typically pass on higher costs to their tenants.
Insurance is all about potential risk. There are predictions for 100-year weather patterns. Homeowners gamble by paying premiums for coverage they also hope they'll never use. Insurance companies gamble against insuring people for a fraction of what a catastrophic loss could mean.
Larson said homeowners' policies are getting better and covering more, including things such as countertops scorched by a hot pan, for a minimal price. For example, Larson said a 2000 home insured for $150,000 with replacement costs for the contents, a $500 deductible and built a reasonable distance from the fire department can expect an annual premium of $412.
If a loss is claimed, Larson said it takes an agency at least 20 years to recoup what was paid out for even a simple loss of $10,000 based on a $400 premium.
"You can just imagine if a house burns down where I'm sitting for just that individual," he said.
The commerce department reported insurance companies expect to pay about 60 cents in claims for every dollar collected in premiums.
In 1998, the commerce department reported claim costs were 295 percent of premiums, meaning for ever dollar gained in premiums, insurance companies paid $2.95 in claims.
"If costs had returned to normal in the succeeding years, we wouldn't be seeing these big rate increases now," the commerce department reported. "Unfortunately, the weather did not improve enough to bring costs down. In 1999 insurers losses were 113 percent of premium and in 2000 they were 130 percent."
For homeowners, additional options include a newer wrinkle allowing a split deductible so homeowners could decide to have $500 for somethings and $1,000 deductible for others when looking as specific perils for wind, hail and lightning.
Agents are required by law to provide optional insurance coverage provided through the state to individuals who want coverage, but may not qualify for a main carrier.