In the late 1980's and in the 1990's Homeowners insurance was a money making proposition for most of the insurance companies in the state of Minnesota. During that period, the combination car-home policy discount was instituted. In additon, the stock market was doing well.

The way that insurance companies can invest is very closely controlled by the state. This is so that in the event of a loss in the stock market, an insurance company will not go out of business. However, because even very safe investments were doing very well, many companies kept rates low in order to have dollars to invest. While this was happily accepted by the average homeowner, it did not reflect many of the changes that take place every year, such as inflation and catastrophic losses.

Because of this situation, over a period of time, the profitability of Homeowners insurance eroded. Eventually, the entire insurance line began to lose money.

Minnesota has had traditionally liberal courts and state legislature. Although we can disagree on the pros and cons, again over a period of time, the covered perils in Homeowner insurance polices have been expanded.

Although many disagree, I do not believe that insurance companies try to overcharge for their product. Companies exist in a very competitive environment and work under complex constraints. Insurance companies, like every other company, are in business to make a profit. When the homeowner insurance line became unprofitable, it was predictabe that rates would be increased. Because the rate of increases were kept artificially low for many years, in many cases homeowners insurance rates have been increased dramatically.

When it became more difficult to make a profit, the companies that were the furthest behind the curve in raising rates found it difficult to raise their rates enough. Many of those companies have left the state and their business has been distributed to remaining companies. The remaining companies in turn, are much more serious about charging the correct premium for the structure that is insured, insuring each structure for the proper amount, and making sure that underwriting guidelines are strictly followed.

Catastrophic losses are a fact of life (and of nature). However, in the last several years, Minnesota has seemingly had more than its share of tornados, straight line winds, floods, etc.

The terrible tragedy of September 11, 2001 will haunt the United States forever. Let us all pray that there will not be additional terrorist events of a similar magnitude. From an insurance standpoint, all companies belong to reinsurance pools and have been called upon to make extraordinary payments to those pools to cover this unanticipated event. This has caused an additional unforseen drag on insurance company profitability.