Sharper Management


Insurance Market Troubles

insurance market

The insurance market for HOAs has been volatile, at best, for the last decade. 2023 has been horrendous on a number of fronts. For most associations, premium increases have been somewhere between 20-40%. For some, the primary business/structural policy premium has doubled. And for a rapidly growing number of associations, surprising news of non-renewals has left them scrambling to find coverage elsewhere in an already consolidated market. Unfortunately, the future doesn’t give any optimistic signs of improvement. Although Minnesota is not alone in this troubling trend, we have been hit harder than most states. For five consecutive years, Minnesota has ranked in the top-5 in the nation for losses paid out. Florida has hurricanes. California has wildfires. Minnesota is the bullseye for hail. Minnesota has now been labeled as a “catastrophic state” by most insurance carriers, shrinking the market’s interested providers and inflating the rates for those offering coverage. One local industry expert calculated that for every $1 of premium collected, the insurance market has paid out $1.44 in losses for the multi-family sector. In response, carriers have not only increased premiums, but also wind-hail deductibles have increased to the point they no longer even pay out for hail damage; they’ve increased the number of “exclusions” on policies, and thus reduced the scope of coverage and further complicating claims; they have decreased the “cash value” and valuations on claims. While premium increases have been challenging, the real trouble in 2023 has been the shrinking market of providers and non-renewals. One industry expert with Insurance Warehouse estimated that there are only two or three carriers that will even write new policies for a townhome-style association right now. The big names, such as American Family, State Farm, Farmers, etc., have steadily been non-renewing associations with claims history and choosing to refrain from writing any new policies for multi-family developments. Many associations have had to go to the “secondary market” of carriers, which only fulfills the association’s requirement to have insurance, but offers little coverage and inflated premiums. The insurance market for associations is really in a state of crisis. In summary, carrier selections are becoming fewer, non-renewals more common, and drastically increasing premiums are the norm. Associations need to be aware of these challenges and be prepared financially.

The Ever-Changing HOA Insurance Market

If you have seen your association’s master insurance premium increase in recent years, know that you are not alone. The insurance market for multi-unit dwellings (i.e. condos and townhomes) continues to be volatile. According to Marsh & McLennan, for the past eight years Minnesota has ranked in the top three for “catastrophic losses.” Hail storms and severe thunderstorms seem to be the primary culprits. In 2014, the President of the Insurance Federation of Minnesota, Bob Johnson, reported that the storm clusters that affect the South West Metro in August of 2013 reached nearly $1 billion in losses. Similarly, the storms that came through in 2007 went over $1 billion, and in 2008 reached $1.5 billion. The loss history and risk exposure has created a market place that has consistently increased insurance premiums over the past 10 years – and significantly reduced the pool of carriers that will even consider insuring condominium and townhome communities. In response, carriers are diversifying policies. One particular market change that will affect many associations in 2016 is the addition of separate wind/hail deductible. For example, American Family, which insures a large share of the townhome market in Minnesota, has stated that all communities made up of more than 10 buildings will require a 1% or 2% wind/hail deductible, per building, for new and renewing policies. Until the losses subside, or until more players enter the market place, it is hard to see premium increases stabilize – and easy to see policy changes shift some risk exposure back to the association and/or homeowner’s HO6 policies.