Weathering the Storms

Relishing Low Risk

While Minnesota business owners might expect a trickle-down effect from the coastal storm losses, insurance companies try to avoid passing on these losses to areas where business is solid.

“They’re going to want to hang on to what they have here, where it’s good business,” Bowers says. “It really is free enterprise at its best.”

Regional carriers such as General Casualty, Western National, and Secura—which only serve Midwestern states—have helped keep Minnesota’s premiums low. “The regional carriers, because they don’t write in states [hit by hurricanes], don’t have the same exposure,” Bowers says. “They can be more competitive with their rates . . . unlike national carriers that have exposure in catastrophic areas and more chance for severe losses.”

“There are a lot of carriers who are pulling out of the coastal areas completely, or they’re going to raise their rates dramatically to stay competitive,” says Bart Kons, account executive with KMA, Inc., an insurance brokerage and risk-management firm in Burnsville. “When companies pull out of those areas, they’re going to try to gain market share in areas like the Midwest and areas that don’t have as much catastrophic exposure. This is usually a good thing for business owners. Increased supply relates to the softening of pricing.”

The Role of Reinsurance

Just because commercial property insurance rates here have not yet noticeably risen does not mean they won’t. Denise Exner, vice president of the J.A. Price Agency, an insurance firm in Eden Prairie, says that not all of the claims from the major 2005 hurricanes have even come in yet, and there are areas adjusters have not examined. She adds that adjusters must spend extra time trying to find out what came first, the flood or the wind, as many people didn’t have flood insurance. “It will take another year for this to all settle down,” she says.

Kons agrees: “A lot of times you won’t see a direct impact on your insurance rates until six months, nine months, or even a year after a major catastrophic loss due to timing of reinsurance contracts.”

The renegotiation of such reinsurance contracts may be another factor that pushes up premiums. Reinsurance is insurance bought by the insurers. “An insurance company has [a payout] capacity for millions, and in some cases, billions of dollars, and anything above that capacity is called reinsurance,” Kons says. “The insurance company will pay the first amount, and anything that goes above that will be covered by the reinsurance treaty.”