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Blog by: Ken Mogren, CPCU

Mother Nature has not been kind to home insurers in Minnesota and Wisconsin the past couple of years. The number and cost of wind and hail claims are breaking records and threatening to break some insurers if they don’t take action. So we are seeing plenty of action. 

All companies seem to be raising rates.  A 10% increase would be considered modest these days.  20%-25% is more typical and we’ve seen some even higher. We are also seeing much tighter underwriting rules.  Insurers are much more likely to turn down an applicant for having prior claims or for the condition of their home.  Underwriters are especially picky about the age and condition of roofs because that’s where much of the wind and hail claim dollars get spent.

We are also seeing insurers encourage, or in some cases, force higher deductible on policyholders. One tactic that‘s becoming more common is to offer percentage deductibles. Such a deductible is tied to the amount of coverage on the home.  For example, a home insured for $300,000 would have a $3000 deductible with a 1% deductible or $6000 with a 2% deductible.  Since $500 or $1000 have been the most commonly carried deductibles in recent years, a switch to a percentage deductible almost always means the home owner would pay more.

Another move that helps insurance companies is to cover roofs for their depreciated value, rather than the traditional replacement value. New shingles on an average sized house might cost $10,000. That’s what would be paid if coverage is on a replacement cost basis, but if depreciation is taken the payout would depend on the age of the shingles. For example, if the shingles are 10 years old, the payment would be more like $5000-$6000.

Insurance regulators require that policyholders be fully informed if such changes are made to an existing policy.  When buying a new policy, it’s especially important to evaluate more than just the price of the policy.  A policy offered with a percentage deductible and which takes depreciation on shingles should cost substantially less than the policies the industry has traditionally offered.

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