MINNESOTA, USA — With 15 natural disasters in the United States this year resulting in at least $1 billion in damages, as reported by the National Oceanic and Atmospheric Administration (NOAA), the insurance landscape is undergoing significant shifts. Notably, this figure excludes the catastrophic wildfires in Maui and the Hurricane Hillary.
While the Midwest has often been considered less prone to such disasters due to its absence of hurricanes or earthquakes, insurance companies’ perceptions have been evolving. Aaron Coggin, President of the Minnesota Insurance Federation, emphasized that even this region has not remained immune to change: “You can look at Minnesota and the rest of the Midwest and say, ‘Hey, that’s a pretty safe bet.’ Things have changed dramatically.”
For years, the Midwest enjoyed a reputation as a relatively low-risk zone, but around 25 years ago, this perception underwent transformation. Coggin highlighted, “In 1998, we had storms that totaled over $1.5 billion in damages, more than the previous 40 years combined. We’ve just had an avalanche of these storms since 1998.”
While the Midwest does not grapple with hurricanes, earthquakes, or extensive wildfires, it faces its share of challenges, including tornadoes and hailstorms. In fact, hail is a particularly destructive force. The region experienced 387 hailstorms last year, ranking third-highest nationwide, alongside being fourth for tornadoes with 77, as reported by the Insurance Information Institute.
Consequently, the insurance cost burden for homeowners in Minnesota has escalated. According to Bankrate, the state ranks 11th in the nation for homeowners insurance, averaging nearly $1,930. Taking household income and annual earnings into account, Minnesota’s premiums stand as the fourth-highest in the country.
Coggin remarked, “Storms that normally occur every 100 or 50 years now occur every 25 or 10 years. Now that these storms are becoming more frequent, the cost of compensating for those storm losses has to be considered.”
While recent natural disasters such as Hurricane Hillary and the wildfires in Maui will impact insurance rates, their influence might not be as extensive as anticipated. Coggin elucidated that California’s hurricane-related losses are projected at $2-3 billion in insured losses, significantly lower than the more than $100 billion in damages caused by Hurricane Ian last year.
Notwithstanding, Coggin highlighted a positive aspect: potential savings for homeowners. By exploring various insurers and opting for a higher deductible, homeowners can potentially mitigate premium costs. Furthermore, an upcoming avenue for savings might emerge through advancements in construction practices.
Insurance experts suggest that collaboration between the insurance industry and builders to create disaster-resistant building materials could result in incentives for homeowners. These could manifest as discounts and rebates, incentivizing the utilization of resilient building materials that withstand natural disasters without incurring significant damage. This evolving approach underscores the insurance industry’s proactive response to the evolving risk landscape.
