Why could home insurance rates rise 5%? Blame disasters

  • Updated: March 9, 2012 - 9:04 PM

If your home insurance policy is up for renewal, don't expect good news when you tear open the mail from your insurer this year.

Rates nationwide are expected to jump 5 percent, pushing the average annual premium to more than $1,000 for the first time, according to the Insurance Information Institute. Bob Hartwig, president and economist for the institute, said the increase will be the biggest on record since the housing downturn began.

Homeowners can blame the weather. Over the past four years, claims have swelled, especially in noncoastal areas where natural disasters have ravaged several states. For instance, a string of tornadoes and violent storms ripped through the South last year, causing billions of dollars in damage. Minneapolis was also affected in 2011, with a deadly tornado that tore into the city's North Side.

"Last year was one of the most expensive on record," Hartwig said. "And Minnesotans have been hit hard by catastrophe losses as well."

Estimates for individual states aren't available, but Minnesota premiums are usually higher than the national average. In 2009, for example, the average homeowner's premium in Minnesota was $880, which is 4 percent higher than the national average. The state had the 14th-highest rate.

"We are fairly certain there will be increases," said Mark Kulda, vice president of public affairs for the Insurance Federation of Minnesota. "The losses the last few years have been huge."

Hartwig said that because it can take years before higher premiums associated with big losses trickle down to homeowners, policyholders should prepare for slightly higher premiums in the coming years. Those increases must first be approved by a state regulatory agency.

"So long as Mother Nature's fury continues, the companies that have to pay to pick up the pieces quite literally are going to have to charge a premium that reflects that risk," Hartwig said.

Jim Buchta • 612-673-7376

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