Are severe storms fueling changes in homeowner insurance policies?

ST. PAUL — Some insurance carriers in Minnesota are making changes to policy language that eliminate coverage for wind and hail damage except when siding or shingles are punctured or torn, a trend that is emerging across the country driven by increases in extreme weather due to changing climate.

That's according to the Minnesota Department of Commerce, which issued a consumer alert late last summer advising homeowners to check their insurance coverage for wind and hail limits.

The alert was sparked by growing complaints from homeowners concerned about coverage denials or unexpectedly high out-of-pocket costs after damage from storms, according to the Department of Commerce, which advises consumers to study their insurance policies for changes since their last review and to ask their insurance agents about policy coverage, exclusions, deductions and options.

According to the agency, a good time to do that is at insurance renewal time, when carriers sometimes make changes regarding premium costs, coverage amounts and exclusions.

Julia Dreier, deputy commissioner for the Minnesota Commerce Department's Insurance Division, recently released an op-ed piece addressing the impact of climate change on the nation's weather and the damage it causes.

Dreier noted that in 2022, Minnesota was hit by at least six weather disasters, each resulting in at least a billion dollars' worth of damage, the largest number of such storms in the state since federal agencies began keeping track.

When it came to the number of storms carrying severe hail last year, Dreier said Minnesota was third in the nation, behind Texas and Nebraska.

According to Dreier, in some states, insurers are reducing their exposure to high numbers of claims by canceling coverage or leaving the market altogether.

Another way insurance carriers are dealing with the situation is to raise premiums or change benefits to cover expected risks, according to Dreier.

"In Minnesota, that trend has led to more unhappy consumers," Dreier said, adding that since 2020 the Commerce Department had recorded a 55% increase in homeowners insurance complaints.

Many of the complaints were from consumers concerned about coverage denials or unexpectedly high out-of-pocket costs after damage from wind or hailstorms, she said.

North Dakota, too, is seeing an increase in insurance providers writing what are known as "cosmetic damage" exclusions into policies, according to Jacob Just, director of communications for the North Dakota Insurance Department.

He added the department is also hearing from consumers concerned about cosmetic damage exclusions.

"It's a common complaint we receive at the department, especially after the first hailstorms of the season," Just said, adding that when they get such calls, the department's consumer assistance staff can help policyholders better understand that part of their policy.

"Consumers should have regular conversations with their insurance agent to ensure everything they want covered has the appropriate coverage," said Just, who noted that the use of cosmetic damage exclusions by insurance companies is nothing new and he said they aren't necessarily linked to effects of climate change or recent stormy weather.

"We would say it has nothing to do with either (climate change or storms). It's more of a business/economic decision by insurance companies," he said.

Dreier, who views the potential impact of climate change on insurance coverage differently, said one way Minnesota can meet the threat posed by increasingly severe weather would be to adopt a program the Commerce Department is proposing called Strengthen Minnesota Homes, which is spelled out in House bill HF2300.

Modeled after a similar setup that has been successful in Alabama, the program would do two things: provide grants to retrofit homes to make them more weather resistant and establish mandatory reductions in some homeowner insurance premiums.

The proposal would prioritize low-income populations that are disproportionately impacted by climate change and which have the fewest resources to protect their homes or rebuild after a storm.

Dreier said such a program would benefit homeowners, the insurance industry and the state.

"While investing to make one roof storm resistant may only benefit a single homeowner, individual action multiplied across an entire community or communities can meaningfully shrink the insurance risk posed by climate change," she said.