Insurance Exodus Update: Why Iowa is Losing Its Insurers Now

Insurance Exodus - Iowa

The recent departure of multiple insurance companies from Iowa’s homeowners’ market has sent shockwaves through the state. The New York Times reported that insurers are pulling out due to severe financial losses driven by unprecedented weather patterns. This move raises significant concerns for homeowners and demands a closer look at what has led to this exodus.

The Insurance Turmoil Caused by Climate Change

The insurance turmoil caused by climate change — which had been concentrated in Florida, California, and Louisiana — is fast becoming a contagion, spreading to states such as Iowa, Arkansas, Ohio, Utah, and Washington. Historically, these states were considered relatively safe from the worst impacts of climate change, thus enjoying stable homeowners’ insurance markets. However, shifting weather patterns and an increase in frequency and severity of natural disasters have altered the landscape dramatically.

Even in the Northeast, where homeowners insurance was still generally profitable last year, the trends are worsening. States previously shielded from significant climate-related insurance challenges are now dealing with rising claims and unprecedented financial exposures. Insurers are recalibrating their risk assessments and either hiking premiums, going bankrupt or exiting markets entirely to mitigate potential losses.

Homeowners Insurance Exodus - Climate Change

What Changed for Iowa Insurance Companies Last Year?

The financial results for many Iowa homeowner insurers in 2023 are staggeringly poor. For instance, Grinnell Mutual reported a loss ratio of 290%, while Westfield and Celina reported 253% and 217%, respectively. These figures are far above the acceptable loss ratio of 70%, leading to unsustainable financial pressure on these companies.

The number of insurers entering liquidation or receivership nearly doubled from eight in 2022 to 13 in 2023. When insurers fail to meet their financial obligations, the home state’s insurance commissioner initiates rehabilitation. If unsalvageable, the insurer is declared insolvent, and liquidation is ordered, placing it under the state insurance department’s control. This trend underscores how severe weather is impacting even the most established insurers.

  • Missouri-based Cameron Mutual, founded in 1892, was driven into liquidation in December 2023 due to excessively severe weather events throughout the year.
  • Wisconsin Re, a reinsurer of several dozen tiny town mutuals and county mutuals across Arkansas, Illinois, Iowa, Missouri, South Dakota, and Wisconsin, founded in 1892, entered rehabilitation in June, causing its cedants to scramble for reinsurance protection.
  • Arkansas-based United Home Insurance, founded in 1868, faced liquidation in November.
  • Kansas-based MutualAid eXchange (MAX), organized as a reciprocal focused on mutual aid ministries and faith-based risks, received a liquidation order in August, having been severely impacted by extreme weather conditions.

These cascading insolvencies emphasize the vulnerability of insurers, regardless of their history or foundational principles, in the wake of climate change-induced natural disasters. Looking ahead, the insurance industry and regulatory bodies must develop innovative and robust strategies to mitigate the impact of such extreme weather events.

2023 Iowa Homeowners’ Insurance Direct Incurred Loss Ratios:

  • Grinnell Mutual: 290%
  • Westfield: 253%
  • Celina: 217%
  • Farmers Mutual Hail: 164%
  • Midwest Family Mutual: 160%
  • State Farm: 137%
  • Hastings: 131%
  • Allstate: 106%

Source: S&P Capital IQ Pro

The Impact on Residents and the Local Market

The withdrawal of insurers from Iowa has several profound effects on residents and the local market:

  1. Limited Options and Higher Premiums: Homeowners may find themselves with fewer choices for insurance coverage, particularly for properties at higher risk of weather-related damage. This scarcity can lead to increased premiums.
  2. Reduced Competition: The exit of insurers reduces market competition, which could drive up insurance costs across the board.
  3. Property Value Implications: The availability and affordability of insurance are critical factors in property sales and purchases. If insurance becomes harder to obtain or more expensive, property values could decline.
  4. Economic Impact: Businesses and individuals might need to allocate more funds towards insurance premiums, reducing disposable income for other investments and potentially slowing economic growth.

The Escalation of Natural Disasters in Iowa During 2023

In 2023, Iowa experienced a staggering number of natural disasters, which significantly impacted the state both economically and environmentally. There were 79 confirmed weather and climate disaster events, each with losses exceeding $1 billion. Among these, severe storms were the most frequent, with 52 recorded events. These storms brought about extensive damage to infrastructure, agriculture, and homes, leading to substantial economic losses. The state’s agricultural sector, in particular, was hit hard, as crops and livestock were often destroyed or damaged, affecting both local and national food supplies.

In addition to severe storms, Iowa faced other significant weather challenges throughout the year. There were 15 drought events, which led to water shortages, compromised crop yields, and heightened wildfire risks. The state also endured 7 flooding events that caused widespread destruction to properties and displaced numerous residents. Moreover, 2 freeze events and 3 winter storm events added to the adversity, disrupting daily life and causing further economic strain.

Responses from State Officials and the Insurance Industry

In response to this crisis, state officials and the insurance industry are taking several steps:

  1. State Initiatives: State officials are acknowledging the challenges posed by extreme weather and are working on initiatives to bolster the state’s resilience and disaster preparedness.
  2. Engagement with Insurers: The Iowa Insurance Division is actively engaging with insurers to understand their concerns and explore potential solutions to keep them in the market.
  3. Industry Advocacy: The insurance industry is advocating for a balanced regulatory environment that supports sustainable underwriting practices while ensuring fair and affordable coverage for homeowners.
  4. Attracting New Insurers: Efforts are being made to attract new insurers to Iowa, promoting the state’s strengths and opportunities.

Why We Need Healthy Insurance Companies

Beyond the traditionally problematic markets of states like Florida and California, unexpected insurer failures are taking root even in states like Iowa, where extreme weather events have severely impacted insurers’ financial health. This trend illustrates that despite strong foundational principles, the industry must continually adapt and learn to maintain stability amidst escalating climate challenges.

Such adaptations may include more sophisticated risk modeling, enhanced disaster preparedness planning, and greater collaboration with regulatory bodies to ensure a balanced approach to underwriting and sustainability. The ability to learn and evolve in response to these new challenges is vital for the future robustness of the insurance industry.

For those interested in staying informed and engaged with industry insights, consider following our updates and joining the conversation on how we can navigate these challenges together.

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