Climate disasters worsen insurance prospects in Iowa

Nice said he never filed any claims or had been notified of any issues with his home on Friendly Avenue.

A tree service determined the large silver maple in his front yard was “very beautiful and healthy,” and not at risk for falling, but recommended pruning it back “to get it up off the house” and installing 25-foot cables on the larger branches that overhang the house.

That’s why he was surprised when he received an email with a request from his insurer asking him to make substantial changes to his property.

Travelers Insurance used aerial images to scan the house for defects — a growing trend among insurance companies.

It noticed that there were tree limbs touching and overhanging the roof of his home. The company said he needed to remove branches so that the entire roof would be visible from an aerial view in order for his policy to renew on June 1.

Nice spent $4,000 removing branches, making 80-90% of the roof visible from the air. Making the roof completely visible would require removing the tree, which Nice said he could not afford and was unwilling to do.

Travelers decided that wasn’t enough and dropped him anyway. That sent Nice scrambling to find another company to insure his Moffit cottage, a term that refers to its builder, Howard F. Moffit, who was known for designing unconventional homes.

“It felt kind of hostile,” Nice said.

Homeowners insurance rates have soared and thousands of Iowa homeowners have lost coverage as some insurers have pulled out of the state and others are not renewing policies, leaving homeowners like Nice and others searching for new coverage.

As climate change produces more extreme weather, insurers are losing money as disasters from hail, windstorms, tornadoes, hurricanes and wildfires become more frequent.

The tumult in the insurance industry caused by climate change — once concentrated in high-risks states like Florida, California and Louisiana vulnerable to catastrophic hurricanes and wildfires — has now spread to the Midwest.

In 2023, insurers lost money on homeowners coverage in 18 states, more than a third of the country, according to a New York Times analysis of newly available financial data. That’s up from 12 states five years ago, and eight states in 2013.

Most of those states are in the interior of the country, hit by tornadoes, derechos, severe storms and hail in the Midwest and Southeast, and wildfires in much of the West. In response, insurers have raised premiums amid mounting weather-related losses and inflation, narrowed coverage, dropped customers and withdrawn from some states altogether.

The property insurance market is facing significant challenges globally due to inflation, supply chain disruptions and severe weather events leading to high loss ratios for insurers, said Iowa Insurance Commissioner Doug Ommen.

“This hard market that we’re involved in right now is unusual for Iowa. It is not unusual in the insurance market,” Ommen said, citing hard markets that followed Hurricane Katrina in 2005, the 2011 Japanese earthquake and tsunami, and the hard freeze in Texas in 2021.

“I would offer that what we see in our hard market here in the U.S. is tied to the derecho and the very large losses that we experienced in 2020,” he said. “But it’s also tied to a number of other items.”

Insurance companies are struggling to keep up with increasing losses, and policyholders are facing premium increases.

A May report from Moody’s Ratings says more than 90% of the country experienced double-digit rate increases from 2019 through 2024 as the industry faces soaring costs. In some states, rates jumped up to 60% over the five-year period. And in 2023 alone, some states saw rates increase as much as 30%.

The report notes that from 2014-2023 insurers paid out more for claims than they earned in premiums.

The report states insurance companies are facing several challenges to profitability, including weather-related losses, inflation and more people moving to areas at higher risk of flooding, hurricanes and wildfires — each of which is becoming more intense due to climate change. At the same time, increased labor and materials cost, plus persistent supply chain bottlenecks, has increased costs to rebuild and repair homes, with litigation pushing the costs of insurance claims even further.

According to the American Property Casualty Insurance Association, rapid increases in inflation since the start of the COVID-19 pandemic have contributed to significant property and casualty insurance losses. The cost of building materials remains higher than regular inflation, “far outpacing increases in premiums, while natural disaster losses continue to climb, resulting in the hardest market cycle in a generation,” according to the association.

The U.S. property and casualty insurance saw an estimated $21 billion in underwriting losses in 2023. Underwriting losses in 2022 totaled $24.8 billion, according to analysis by data analytics and risk assessment firm Verisk and The American Property Casualty Insurance Association.

According to the association, 2022 was the eighth year in a row the U.S. suffered at least 10 catastrophes causing more than a billion dollars in losses. Natural disaster losses from 2020 to 2022 in the U.S. exceeded $275 billion in 2022 dollars — the highest ever three-year total for U.S. insurers.

In Iowa, the homeowners insurance market had been profitable for years, followed by losses in 2020 to 2022 because of severe storms, Ommen said.

“We have strung together some pretty tough years — 2021 and 2022 were also really difficult years,” he said.

In 2020 alone, insurers in the state lost a combined more than $1 billion, according to data from the Iowa Insurance Division.

That year, a derecho, a powerful line of severe storms with hurricane-strength wind gusts, tore through Iowa and the Midwest. It was preceded by severe thunderstorms that dropped ping-pong ball to baseball sized hail across Eastern Iowa, and followed by a string of windstorms, hail and tornadoes, making it hard for insurers to recover.

In 2023, for every dollar insurers earned from homeowners policies in Iowa, they paid out $1.44 in losses and other costs, according to The New York Times’ analysis.

The growing tumult is affecting people like Nice, whose homes have never been damaged and who have dutifully paid their premiums.

Cancellation notices have left them scrambling to find coverage to protect what is often their largest investment, and often face challenges navigating a shifting landscape with limited options, according to interviews with homeowners and insurance agents and brokers.

As a last resort, some are ending up in high-risk insurance pools created by states that are backed by the public and offer less coverage than standard policies.

In Iowa, residents who have been dropped by their insurance carrier may find coverage through the Iowa FAIR Plan, an insurer of last resort for qualified applicants.

State regulators across the country have grappled to come up with strategies to restore stability to the market.

In Iowa, lawmakers this year passed new laws allowing county and state mutual associations to obtain reinsurance from companies that are in compliance with Iowa reinsurance laws, rather than only those that are licensed in Iowa.

Ommen, Iowa’s insurance commissioner, said insurance companies are withdrawing from personal lines (home and auto coverage) in Iowa due to reinsurance issues. Reinsurance is a type of insurance that is purchased by insurance companies to reduce risk.

Insurers buy reinsurance, and as disasters worsen and higher interest rates increase the cost of capital, reinsurers have become more reluctant to underwrite insurance in parts of the United States. That’s made insurance companies even more conservative about where to do business, Ommen said.

At least four companies — IMT Insurance, Secura, Celina and Pekin Insurance — have dropped Iowa customers, impacting tens of thousands of policyholders in the state.

“A lot of that had to do, again, not with the risk to the solvency of that company, but the ability of the companies to obtain the reinsurance that they need in order to cover the risks in Iowa,” Ommen said. “ … A tornado event can be very damaging, obviously, and can cause a lot of harm. But it’s generally pretty localized. And so I don’t view that that has been the serious risk. The serious risk has been the risk of straight-line windstorms and widespread hail. And so it’s the reinsurers that have made it much more difficult for these mid-size, smaller companies to get reinsurance.

Iowa lawmakers this year also passed a new law for county and state mutual insurance associations to reorganize by forming a mutual insurance holding company. It also extends the required notice for policy cancellation from 30 days to 60 days for automobile, county and state mutual insurance policyholders.

“We’re continuing to study the market to see what can be done from a regulatory perspective in order to encourage companies to view the Midwest as a good place to write insurance,” Ommen said.

States regulate insurance markets by approving or rejecting rate increases, dictating the extent of coverage and providing consumer protections, but have limited government control when it comes to regulating reinsurance, Ommen said.

“Reinsurance is an international economic approach to getting capital into the insurance markets,” he said. “These are global companies that have applied science and modeling to determine how it is that those underlying risks can be managed. … Those are economic decisions that the government really can’t solve.”

Ommen said his office still is working on issues surrounding how much notice companies that withdraw from the state need to provide.

He encourage homeowners and property owners to speak with their insurance agent about available incentives and ways to fortify their home and make their properties more climate resilient to reduce their risks, such as installing water shut-off devices and impact-resistant shingles, windows and doors to withstand high winds.

Dave Langston spent three months trying to find another company to insure the 17 town houses on East Post Court in southeast Cedar Rapids that belong to members of his homeowners association.

Langston, president of the Beaver Creek Homeowners Association, received a notice in January that its insurer, Pekin insurance, was pulling out of Iowa.

The company, in October, announced it would no longer renew home and auto insurance policies in Iowa as part of a strategic restructuring plan that also included temporarily suspending writing new home and auto policies in Arizona, Illinois, Indiana, Ohio and Wisconsin.

The company cited “severe and erratic weather patterns combined with the impacts of rising inflation” that have made it difficult “to keep home and property premiums at manageable levels while paying ever-increasing claim amounts.”

Pekin, in a news release, said it will primarily focusing on commercial and life insurance, which has been less impacted by environmental changes.

“Iowa has become more and more prone to severe weather events. The inflationary rise in claims payouts, coupled with the impact of these storms negatively affected our loss ratio, making it unprofitable for us to successfully operate in that state,” Pekin spokeswoman Susan Crisler said in a statement to The Gazette. “Our decision to no longer write personal lines insurance for the state of Iowa was based on financial performance. Iowa has not been a profitable state for us, resulting in millions of dollars of loss since 2019.”

The decision impacted roughly 40,000 Pekin customers in Iowa, including Eldon Neighbor, an independent insurance agent with offices across Eastern Iowa.

Fortunately, because of his business, the independent insurance agent was able to find a replacement policy within a week or two for his Central City home.

“I’m fortunate. I was north of the derecho, and I had not been hailed on either,” Neighbor said. “So, if you can imagine, living in Marion, where you were pounded by hail stones and a year and a half later you got your roof torn off — with two huge claims on your policy, it’s a little trickier.”

He said his offices are helping Iowans every day who have lost coverage.

He argues home insurance premiums in the state have been “underpriced” for 30 years, and companies have failed to put enough money in the bank to prepare for losses over the last decade.

The result, he said, has been a “perfect storm” of factors that have led to increasing losses and companies to shed their risk in places like Des Moines and Cedar Rapids, going so far as to even drop people who have no claim history.

“In the last five years, I’ve seen nothing like it,” he said of the frequency and severity of storms in the state.

Neighbor predicts Iowa will continue to see more insurers leave the state, without others willing to enter the market to replace them.

“The availability of insurance is not an issue. It’s the cost,” he said, and “the speed in which these carriers are able to get rid of people.”

Dave Langston, the Cedar Rapids HOA president, found new insurance but it came with a steep price. The association’s previous insurance was $18,500 while the new insurance is now $26,500, with reduced coverage on wind and hail and a 2% deductible of the home’s value as opposed to a $10,000 deductible for an event.

Securing the policy required “jumping through hoops” to prove the association used higher-end materials when replacing roofs following the 2020 derecho, in addition to replacing outdated heating and cooling systems, said Linda Langston, Dave’s wife and a former Linn County Supervisor who has been working on climate resilience for the last 18 years.

She served on the National Advisory Council for the Federal Emergency Management Agency (FEMA) and currently serves on the board of Geos Institute, which helps communities build resilience in the face of climate change.

“A lot of people are going to have to pay more if they want their homes insured, and they may not get as much coverage, which provides a barrier to homeownership,” Langston said. “So there’s equity issues buried in this as well.”

Nice, the Iowa City homeowner, found a new policy, but also is paying more for less coverage. His prior policy provided coverage up to $140,000. His new policy covers up to $124,000 — less than value of his home.

Nice said he filed a complaint against Travelers with the Iowa Insurance Commissioner for unfair market practices.

“The goal, it seemed to me, was to get out of the policy,” he said. “The conditions of my property have not changed, in fact they’ve been improved, since Travelers agreed to insure the property when I bought it in June 2021.”

Nice said the whole experience was confusing, alarming and stressful.

Travelers, in a statement to The Gazette, said it continues to write and renew business “that’s consistent with our underwriting appetite.”

“We regularly monitor our risk exposure and make any adjustments to ensure we are operating responsibly and can fulfill our obligations to our customers,” the company said. “The loss environment and marketplace for personal lines are dynamic. Through a variety of underwriting approaches, including targeted pricing and managing policy terms and conditions, we are responding to the impact of inflation across the country and increased levels of severe weather in certain states.”

Marion insurance agent Gary Mosakowski said homeowners should educate themselves on their policy details and available coverage options to avoid surprises. He also stressed the need to shop around for insurance.

Mosakowski said policyholders may need to increase deductibles to lower or keep rates from increasing, but be prepared to pay out-of-pocket if needed. He also warned against filing claims for minor repair costs.

“Three claims in a year may result in policy nonrenewal, so choose claims wisely and avoid unnecessary filings,” he said.

Homeowners and agents also should work together on an ongoing basis to manage insurance costs and identify available discounts.

“I don’t see anything coming down price wise,” Mosakowski said. “I could see it maybe leveling off if things get better.”