Minnesota View: Boost resiliency to reduce insurance risk caused by climate change
From the column: "A program for pre-coverage would be a win-win-win for homeowners, the insurance industry, and the state."
In September 2020, Hurricane Sally struck five states along the Gulf Coast, spawning more than 20 tornadoes and causing $7.3 billion in property damage. Most of that damage was in Alabama and the Florida Panhandle.
In Alabama, however, thousands of homeowners had an extra degree of confidence that their homes would withstand the storm. That’s because their homes comply with a standard for construction that recognizes storms are becoming more frequent and more severe in the era of climate change. Of the 18,000 Alabama homes that met the standard — known as FORTIFIED and developed by the Insurance Institute for Business & Home Safety (IBHS) — fewer than 1% reported losses related to covered building components.
Strong hurricanes like Sally in 2020 or Ian in 2022, along with images of wildfires in California and parched lake beds in Nevada, may make climate change seem like a problem for other states. The reality is our climate in Minnesota is also changing. Data show Minnesota is warming faster in winter than almost any other state. This warming causes more severe weather, which explains why there are 155,000 homes, 29,000 miles of roads, and 13,000 businesses at risk of significant flooding in Minnesota right now.
As Minnesota’s insurance regulator, the Department of Commerce knows the insurance industry is concerned that intense storms, whether in Minnesota or in Alabama, are more expensive now than at any other time on record.
In 2022, Minnesota was hit by six weather disasters that exceeded $1 billion in property damages, the most since federal agencies started keeping track. Minnesota was also No. 3 in the nation last year for reports of severe hail, trailing only Texas and Nebraska. Just as it strengthens homes against hurricane winds in Alabama, the IBHS FORTIFIED program can strengthen the resilience of Minnesota homes to the type of high wind and hail that we weather every year.
The trend is almost certain to continue, and now is the time to act to avoid larger and more expensive problems. That’s why Commerce is proposing a program to help Minnesotans strengthen their homes. Our proposal recognizes that insurers can respond to more frequent and more severe storms in three ways.
First, in some states, insurers are reducing their exposure to risk by simply canceling homeowners’ coverage or withdrawing from the market altogether. Louisiana’s insurance commissioner declared his state to be “in a crisis” this year after more than 20 insurance companies exited the state or shut down, forcing hundreds of thousands of families to go without coverage or pay much higher premiums.
Second, insurance companies are raising premiums or changing benefits to cover expected risks. In Minnesota, that trend has led to more unhappy consumers. Commerce has recorded a 55% increase in homeowners insurance complaints since 2020. Many of those complaints are from homeowners concerned about coverage denials or unexpectedly high out-of-pocket costs after damage from wind or hailstorms.
The Commerce Department’s proposal, known as Strengthen Minnesota Homes, advances a third strategy: reducing insurance risk exposure through mitigation. By mitigating the risks posed by extreme weather events, we prioritize the legitimate interests of both homeowners and insurance companies in responding effectively to the climate crisis without causing economic hardship. Our approach also reflects the business reality that in our new normal of extreme weather, it is cheaper to pre-cover storm damage than recover from it.
The Minnesota Department of Commerce’s proposal is modeled after Alabama’s successful program, which, for 12 years, has coupled grants to retrofit existing homes with premium reductions on homeowners insurance. As in Alabama, Minnesota’s program would require grant recipients to work with contractors trained on the FORTIFIED standard, which is based on decades of research by IBHS, demonstrating that risk decreases as resiliency increases.
Adopting Strengthen Minnesota Homes also would create a valuable opportunity to embed equity into Minnesota’s climate-resiliency efforts by prioritizing low-income populations that are disproportionately impacted by climate change and have the fewest resources to protect their homes or rebuild after a storm. A program for pre-coverage would be a win-win-win for homeowners, the insurance industry, and the state.
Minnesotans are understandably proud of our reputation for personal resiliency. That’s an important value in this conversation, because “pre-covery” requires boosting resiliency home by home. 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. That would benefit all Minnesotans.
Julia Dreier is the deputy commissioner of insurance for the Minnesota Department of Commerce. She wrote this exclusively for the News Tribune.