Minnesota Community Association Insurance Market Report

February 2014 - First Quarter Report

March 7, 2014Minnesota

The Minnesota multi-family insurance marketplace is experiencing continued hardening, largely related to repeated catastrophic weather events over the last several years. For community associations, this means:

  • Increased pricing ranging from around 20% for loss-free, frame construction associations, and considerably more for associations that sustained losses. Associations with fire resistive construction are currently seeing pricing increases closer to 10% due to their decreased risk of hail and thunderstorm loss. However, the severe cold weather has resulted in multiple winter burst pipe claims that have affected the fire resistive properties as well. It remains to be seen what affect these claims will have on future pricing.
  • Less competition as some insurance carriers go into a holding pattern on accepting new community association business, with others leaving the Minnesota marketplace to decrease their risk of catastrophic loss.
  • Increased loss control and risk recommendations as carriers attempt to mitigate losses.
  • Less favorable terms and conditions as carriers reduce their exposure to loss, and
  • Deductible structures that include high dollar deductible amounts, wind/hail deductibles, per building or per unit deductibles, and percentage of building value deductibles. Many of the deductible structures relate only to the peril of wind and hail. Some carriers, however, are instituting their deductible structure over all perils.

Minnesota has been one of the top three catastrophic loss states three of the last seven years. This statistic, and the enormous claims that resulted, have captured the attention of the multi-family insurance marketplace.

The latest hail storm to sweep through the Twin Cities metro area was a supercell thunderstorm that occurred on National Night Out, Tuesday, August 6, 2013. The storm produced a long swath of severe weather including tennis ball size hail and damaging winds. Eden Prairie, Eagan, Edina, and Minneapolis all sustained significant damage and losses. According to the National Weather Service Weather Forecast Office, “several storm spotters reported hail 2 inches or greater.”

In an interview with Minnesota Public Radio, Bob Johnson, President of the Insurance Federation of Minnesota, stated the losses from this severe convective storm is already $800 million and likely to hit $1 billion. He also cited 2007 and 2008 as years that went over $1 billion in metro storm losses, with 2008 reaching $1.5 billion. This number includes personal, commercial and community association business.

These severe thunderstorm losses are affecting the pocketbooks of Minnesota community associations and the carriers who insure them. As carriers review their losses and the history of severe weather in Minnesota, many are making changes to their offerings and others are no longer comfortable offering property insurance in Minnesota.

In addition, Minnesota’s severe weather has extended to winter storms and severe cold. The unusual and sustained severe cold temperatures the past two months have resulted in a huge number of frozen pipe claims across the metro area, further damaging associations’ loss histories.

Convective storms (storms producing hail, tornadoes, strong winds, and heavy rains) have been trending higher for several years now. The weather patterns appear in some studies to be changing to an increased frequency and severity of convective storms. Thunderstorms have increased sevenfold since 1980, and accounted for 80% of natural disaster losses in the US in 2013.

National insurance losses through 2013.

The red line in the chart above is the 5-year running mean. The “hockey stick” increase has gained the attention of many insurers as they grapple with what it means to be sustainable in an environment with a significant increase in storm activity and losses. We are already seeing their reaction in the increased pricing, underwriting, loss control and deductibles discussed above. Note 2011, which was the costliest year ever for tornado and thunderstorm events at $26B.

And, for the first time, an article published in the Journal Weather, Climate and Society showed that climactic changes have influenced US thunderstorm losses.

The large underwriting losses are not sustainable in the current investment environment. With investment income in a sustained decline and interest rates low, insurance carrier cannot continue to take significant underwriting losses.

Losses from severe convective storms.

Note that the Twin Cities area above is in a region with the most losses from severe convective storms. Note also, that our National Night Out storm of August 6, 2013 was one of the “Significant Natural Catastrophes of 2013”, according to the Insurance Information Institute. 

Significant natural catastrophes in 2013.

Global events and insured losses worldwide are increasing as well, as the graph below shows. The trend lines (adjusted for inflation) reveal steady increases in both loss events and dollars paid.

Global insurance losses through 2013.

How Marsh & McLennan Agency Can Help
Marsh & McLennan Agency is using a multi-pronged approach to assist community associations in this time of increased pricing and decreased options:

  • We are continually exploring the marketplace to find new carrier options for our clients. Using Marsh & McLennan Agency’s national resources, we are working to explore innovative ways to bring more choice to the Minnesota marketplace.
  • Some of our existing markets have changed their focus, creating less of a supply of carriers in the community associationa arena. Our team of nine community association experts works with each association to find a new insurance carrier with the best pricing and terms available in the marketplace.
  • Many carriers are responding to their poor experience in the multi-family housing arena with increased pricing and deductibles. Our team works with the carriers to negotiate the most favorable offering possible.
  • We have a community association claims team to help associations navigate the claims experience and to ensure our clients are treated fairly in the claim process.
  • We have extensive loss control resources for community associations designed to keep associations safe and claims history as low as possible.
  • We have an experienced team (5 members having the Community Insurance Risk Management Specialist, CIRMS, designation from the Community Association Institute (CAI)) that is seasoned in working with multiple carriers in all market conditions. This experience is crucial in a marketplace such as this, with fast-changing appetites, terms, and conditions.

The insurance marketplace for townhome-style community associations in Minnesota is deteriorating at this time due to recent catastrophic severe weather losses, most recently the National Night Out storm of August 6, 2013.

Thunderstorm activity and losses have dramatically risen, and insurance carriers are responding by either changing their program offerings or by exiting the Minnesota marketplace.

Marsh & McLennan Agency and its team of community association experts are here to help associations navigate this difficult marketplace and to help them procure the best insurance options possible.

Works Cited
Geo Risks Research, NatCatSERVICE. (2014). Natural Catastrophe Update - January 2014. Munich Re.

Insurance Information Institute. http://www.iii.org. Web. February 2014.