Dive Brief:
- Although it is well documented that apartment owners in states like Florida, Texas and California have been hit with significant insurance increases over the last few years, operators in the Upper Midwest are also facing challenges.
- A new survey from the Federal Reserve Bank of Minneapolis shows that apartment owners in Minnesota, Montana, North Dakota and South Dakota — four states that lie entirely within the Ninth Federal Reserve District — saw their annual premiums increase by an average of 14% from 2021 to 2022, 22% from 2022 to 2023 and 45% from 2023 to 2024.
- The average 2024 property insurance premiums reported by the respondents, which included 35 owners who operate nearly 45,000 units, were double those of 2021, more than six times the increase in the Consumer Price Index over the same time period. While median increases were lower, they still outpaced inflation.
Dive Insight:
Hurricanes aren’t a threat to landlords in Minneapolis and St. Paul, but some owners reported that insurance companies believe the Twin Cities carry a higher risk due to property damage and perceived high crime rates during unrest in 2020, the Fed’s article says.
“We’ve heard that some prospective carriers wanted to include a riot exclusion,” one owner told the Minneapolis Fed.
Respondents said insurers tied premium increases to weather risk, claims histories and buildings’ physical characteristics. However, apartment owners didn’t buy that explanation.
“We estimate that over 50% of our overall operating expense inflation since 2020 can be explained by property insurance premium increases,” one respondent said. “Property insurance increased from 6% of our total operating expenses in 2020 to a forecasted 14% in 2024.”
While premiums have jumped for apartment owners in the Upper Midwest since 2022, deductibles have risen even higher. From 2021 to 2024, average year-over-year deductible increases were approximately 23%, 27% and 412% for each renewal.
To deal with higher insurance costs, apartment owners sought bids from other providers, avoided filing claims, decreased operating expenses and increased rent when they could.
More than 50% of owners implemented resilience measures like updating roofs, installing fire sprinklers or changing construction materials. However, they reported not receiving discounts from insurers.
In many cases, owners have to turn to their cash reserves to cover additional insurance costs.
“[Drawing on cash reserves] is not sustainable for either [our organization] or the property in the long term, and we’re concerned that affordable housing properties will close entirely if this persists,” one owner said.
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