Recent Changes in Minnesota Homeowners Insurance
Confused about your homeowners insurance policy? You’re not alone. Here in Minnesota and around the country, there have been significant changes in the homeowners insurance marketplace as of late – in both coverage and premium. Let’s look at a few of the more significant changes that we’ve been seeing and what we might expect in the future.
Market Value vs. Replacement Cost
As everyone has seen, market and/or tax appraised value of homes has been decreasing due to many factors such as foreclosures, an over abundance of homes for sale and the collapse of the financial markets. However, while market values have been decreasing, the cost to replace a home has actually increased. According to Engineering News-Record, construction cost indices have risen by an average amount of 4.9% primarily due to fluctuating energy costs, increased costs for construction materials (especially petroleum based products such as shingles) and increased costs for skilled labor. One additional factor that will increase the replacement cost of a home is the cost of debris removal. If a home is damaged, there are costs that will be incurred with the demolition and removal of the damaged portions of the home. This cost is included in the replacement cost value of a home.
Many companies will now inspect homes after a new homeowners policy has been issued. The inspections serve three main purposes: (1)To determine if the replacement cost amount on the policy is correct; (2)To determine the condition of the property; and (3)To identify/verify the updating information for the property. Once the inspection is complete, the company will then notify Dyste Williams of any potential changes that may be needed with the policy.
Over the course of the last couple of years, companies have tightened their homeowners underwriting criteria. Many of these changes are directly related to insurance companies past loss experience. New guidelines stipulate that certain systems within a home (ie: roof, plumbing, electrical and/or heating) must be updated or replaced within a 20 year period. In addition, most (if not all) companies require that a home be equipped with circuit breakers with a minimum of 100 amps.
Many Minnesota homeowners insurance customers have seen significant increases in their homeowners premiums over the course of the last few years. Homeowners insurance companies have had to increase their rates (most by double digit percentages) due to the number of catastrophic claims (ie: the Minneapolis tornado of 2011) that Minnesota has experienced in the last five years. Companies were hoping for a few years of good weather to help reduce the need for additional increases, but unfortunately, many climatologists are now indicating that these extreme weather patterns may be with us for a while.
Indications about the Future
Many of the insurance companies we represent have indicated that additional rate increases and changes in underwriting guidelines may be necessary. Some companies have adopted an “actual cash value” provision for roofs, which helps to reduce the overall homeowners premium but will no longer provide for the full replacement of roofs. There has also been some discussion in the industry regarding the possibility of companies being allowed to non-renew (cancel) a homeowners policy if there are two or more weather related claims in a three year period.
Dyste Williams, along with other independent insurance agents, are working with insurance companies and the Department of Commerce to encourage homeowners carriers to continue doing business in Minnesota. We want to make sure Dyste Williams customers don’t face the same insurance situation as in California and Florida, where homeowners have experienced big rate increases, limits in coverage, and cancellation of coverage. At Dyste Williams, we work hard at being your insurance advocate. For more information about your homeowners insurance, please contact Roberta Gibbons at 952-843-4424.