Growing damage from storms driving some insurers out of Iowa
At least six companies in past 17 months has pulled back coverage
A farm insurance company is dropping some Iowa customers, adding to the list of businesses cutting their losses after a series of storms that wreaked costly damage in the state.
Michael Puerner, chief legal officer for Hastings Mutual Insurance Co., said in a March 4 statement that the business is ending its relationship with some insurance agents. Puerner declined to say where those agents do business, but some Iowa agents say the company is ending its relationship with them.
An industry representative added that Hastings is particularly dropping customers on the western half of Iowa. In his statement, Puerner said Hastings is not exiting Iowa altogether. But the company has struggled in the state in recent years.
Insurance companies aim for a loss ratio of about 60%, in which they would pay out about 60 cents on every dollar. Hastings’ loss ratio on Iowa policies exceeded 80% from 2017 to 2022, according to the Iowa Insurance Division. And in 2020 and 2022, the company paid out more in claims than it received in premiums.
Hastings’ problems have come as other insurance companies have struggled in Iowa, with industry executives blaming an uptick in tornadoes, derechos and hail storms.
“We are taking action to address elevated losses, due significantly to extreme weather,” Puerner said in his statement.
Hastings is at least the sixth company in the last 17 months to pull back its presence in Iowa. Farmers Mutual Hail Insurance Co. of Iowa, Pekin Insurance Co. and SECURA Insurance Co. are in the process of exiting home and auto insurance lines in the state.
Celina Mutual Insurance Co., meanwhile, is exiting all lines of business in Iowa.
Farmers Mutual Hail, based in West Des Moines, also stopped providing reinsurance for county mutual insurance agencies last year because of increased storms. The move left just one reinsurance firm for the small-town insurers, Grinnell Mutual, which announced it would increase premiums by 60%.
Against that backdrop, Iowa Insurance Division spokesperson Chance McElhaney said in an email that 14 of Iowa’s 80 county and state mutuals merged with other companies at the beginning of this year.
At the same time, West Des Moinesbased IMT Insurance stopped offering home coverage to new customers in Iowa and Minnesota in July. Matt Casey, the company’s vice president of marketing and sales, said customers “flooded” the market as other insurers left the state or dropped policyholders.
Casey added that IMT needed to “restore profitability” to its home insurance business.
“Storms and reinsurance pressures have put a lot of stress on carriers,” he said.
Hastings, Iowa’s ninth-largest farm insurer, suffered losses
The farm insurance business is highly concentrated in Iowa. Three providers — Farm Bureau Property & Casualty Insurance Co., Nationwide Agribusiness Insurance Co. and State Farm Fire and Casualty Co. — account for about 75% of all the state’s farm premiums.
Since entering Iowa in 2010, Michigan-based Hastings had increased its presence to become a mid-sized insurer. In addition to modest home, commercial and auto insurance businesses, Hastings sold about farm insurance policies that generated about $4.1 million in premiums in 2022, making the company Iowa’s ninth-largest farm insurer. (Celina, which began withdrawing from the state in October 2022, was the 12th largest.)
But Brian Neal, an insurance agent in Urbandale, said a Hastings representative told him recently that the company was dropping some of his customers. A couple days later, he said, the company added that it was not going to be doing any more business with his agency. He said other Iowa agents received the same news.
“They’ve been a great partner of ours,” Neal said. “We have nothing but respect for them. But this kind of came out of left field. ... That’s happening more and more.”
While farm insurance has been Hastings’ biggest business in Iowa, the line was also its worst performer in 2022, the most recent year for which financial figures are available. The company paid out about $7.5 million in losses that year — about $3.1 million more than it received in farm insurance premiums.
Neal said Hastings hired a weather forecaster who advised it to pull back its holdings in Iowa. He said Hastings had a reputation for offering policies at a competitive price, but the company and other insurers have grown weary of Iowa, where hail storms have become more frequent and powerful.
“I don’t know that there’s a carrier out there that hasn’t changed their underwriting requirements,” Neal said. “I don’t blame them. They’re paying a lot of losses.”
Independent Agents of Iowa CEO Tom O’Meara said Hastings is still working with agents on the east side of the state. He said storms have hit the territory west of Interstate 35 harder in recent years.
“This is a western Iowa phenomenon,” he said.
Expect higher deductibles to make up for company losses
At Ohio-based Celina, reinsurers have applied more pressure on the company because of an increase in Midwestern storms.
Celina Chief Operating Officer Ted Wissman said the company’s retention level — the amount it has to pay out after a storm — has doubled in recent years. In addition to the increased hail storms, he said, weather trends have shifted tornadoes from the Oklahoma region to Iowa.
“People will debate whether or not it’s global warming or whatever it might be,” Wissman said. “It doesn’t really matter. As an insurance company, we have to deal with it.”
He added: “Iowa is taking a bigger hit than some of the other states.”
In 2022, Celina paid out about $1.5 million more in losses than it received in premiums in Iowa. That does not account for other company expenses, like salaries, agent commissions and office maintenance.
Company executives decided to exit the Iowa market in October 2022 and stopped renewing policies last April. Celina is still selling insurance in five states.
Illinois-based Pekin, meanwhile, exited its home and auto insurance lines in Iowa in December. The company received about $4.8 million more in premiums than it paid out in losses in 2022. But Pekin’s loss ratio was 81%, well north of its 60% target.
Over the last five years, the company’s loss ratio has exceeded 100%, said Joel Jackson, Pekin’s vice president of marketing. The August 2020 derecho, the most expensive storm in Iowa history, cost Pekin about $90 million, he said. That was about $40 million more than the company received in premiums that year.
“Every time you hear there’s going to be a hail storm or a wind storm or a tornado, it’s occurring in a certain geography,” Jackson said. “And that geography always includes Iowa.”
Jackson added that insurance companies are struggling because premiums did not keep up with the increased cost of building materials when inflation took off in 2021. He said Iowa homeowners should continue expect to see increased deductibles.
“The product’s got to change,” he said.