Residents in the Upper Midwest could be in for a rude awakening. Experts warned that they should brace themselves for massive increases in the cost of homeowners insurance, and the ongoing climate crisis is to blame.
What's happening?
As explained by Housingwire in September, states in the Ninth Federal Reserve District — which includes Minnesota, Montana, North Dakota, South Dakota, 26 counties in northwestern Wisconsin, and the upper peninsula of Michigan — are seeing homeowners insurance premiums rise at a much faster pace than the national average.
An article published by the Federal Reserve Bank of Minneapolis used data from S&P Global to determine that premiums have increased by 34% nationwide over a seven-year period. However, Upper Midwest states are dealing with drastic levels of inflation due to the increased frequency of extreme weather events in the area.
"In Minnesota, for example, requests for premium increases filed by insurers are reviewed by actuaries at the Department of Commerce to ensure they're not too high and not too low," the Housingwire article stated. "Average homeowners insurance premiums have increased by 39% over the past seven years, and 15% in 2023 alone."
It was also noted that premiums increased by 41% in South Dakota over that seven-year span, with inflation growing by 24%.
Why is this important?
As temperatures increase around the world due to our changing climate, extreme weather events like storms, wildfires, and flooding can become more frequent and intense.
According to Housingwire, "nearly half" of the 19 U.S. storms that cost at least $1 billion in damages in 2023 occurred in Ninth District states, which explains why insurance companies feel justified in hiking their rates.
Unfortunately, the Upper Midwest isn't the only area of the U.S. that is susceptible to extreme weather events and dealing with skyrocketing insurance rates as a result.
"In Florida, it's hurricanes. In California, Montana, and many Western states, it's wildfires. In the Upper Midwest, it's wind and hail storms. All of which are exacerbated by the inflation of construction costs," Housingwire explained.
What's being done about this?
These increased insurance rates could force many people to pay much higher premiums or consider relocating away from areas prone to natural disasters. In some cases, residents opt for cheaper coverage that is more limited or choose not to pay for home insurance altogether.
Still, the insurance industry doesn't appear to be budging from its belief that these rising rates are necessary because of the lack of preparation to cover the damages brought by extreme weather events.
"A lot of the companies have been operating at a loss for a considerable period of time," Julia Dreier, the Minnesota deputy commissioner for insurance at the state's Department of Commerce, said, per Housingwire. "Typically, what we had seen in an insurance market is you'd expect some years of loss but some years where they're not losing as much money. And we've just seen five-plus years of sustained losses."
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