St. Paul, Minn. — Lynn Johnson points at the holes in the side of her house in north Minneapolis.
"I put an owl out here, a fake owl, to see if it would discourage him. but it didn't," Johnson says.
A woodpecker has made a habit of poking holes in Johnson's siding. But her homeowner's insurance policy covered repairs for that kind of damage. But in the end, she says, it wasn't worth making the claim.
"How much did it cost me to call them? It cost me a lot. It was not worth it at all. And I would never do it again," she says.
The repairs cost the insurance company about $300. But last summer, Johnson made another claim, for a repair to her deck. The two claims totalled less than $1,500 -- not much compared to losing a house in a fire. But her insurer, MetLife, decided two was too many.
"I thought they were so small, I didn't even imagine that they would non-renew me," says Johnson. But that's what MetLife did.
Minnesota law allows insurance companies to refuse to renew a policy under certain circumstances. The door is open if there have been two or more claims paid in three years. Storm-related claims don't count. Nor do losses where the insurer collects most of the cost from a third party.
Failing to act on an insurer's request to fix a situation that adds risk, like an uplifted sidewalk, can also lead to non-renewal. Companies have much broader discretion for cancelling new policies within the first 59 days.
Nancy Link of Minnesota's Commerce Deparment says in some cases the non-renewals amount to nitpicking, even though it's legal nitpicking.
It only makes sense then, for us ... to only keep that business that's very best, that represents the least exposure to loss.
"An elderly insured who'd been with a company for 30 years had two bikes stolen in one summer. There's your two losses in a three-year period," says Link. "After 30 years they non-renewed her -- for $600 paid out in claims."
Lynn Johnson says she lost a policy that afforded good coverage for her north Minneapolis home, and peace of mind.
"I'm a little upset about it. Any time anything like this happens, I guess, it has to do with security as far as I'm concerned," says Johnson. "And my security and my children's security mean a lot to me. So, I get really worried, because I like having all my ducks in a row."
Johnson's insurer, MetLife, says it rarely non-renews for prior losses, but people who file multiple claims are statistically much more likely to file additional claims in the future. The company says the less time between losses, the more likely a non-renewal.
Lynn Johnson says she just wishes someone had told her two small claims could cost her her policy. Like many people who are non-renewed, her only option was the Minnesota Fair Plan.
The Fair Plan is a safety-net program created by the state. It's funded by policyholders' premiums and the industry. But Johnson says the Fair Plan offers coverage nowhere near what she had.
We, the industry, to a large extent created the market, we created the product. We created the expectation and the advertising that shows, hey if you have this type of situation, this is covered and this is covered.
"It was quite a bit more money, with a lot less coverage," Johnson says.
"You don't want to become my customer if you can avoid it. You do not want to be my customer," says Dan Johnson, who runs the Fair Plan.
Despite that warning, he's getting more customers -- in record numbers. The Fair Plan saw a 40 percent increase in applications for homeowners policies last year, and now insures more than 5,000 homeowners. Applications set a new record again in March.
Johnson says the Fair Plan stems from federal efforts back in the late 1960s, to ensure inner city residents could get insurance in the wake of race riots.
"Now our customer base is far more similar to a regular insurance company's base," says Johnson. "We're now taking on lots of suburban risks that, before, the private industry was happy to take. But now they find -- for whatever reason -- these customers are not the type of people they want to keep on the book."
Johnson says great stock market returns in the past allowed the insurance industry to underprice homeowners insurance, and make up the difference on investment income. With the market declines, he says companies have imposed big premium increases and tighter restrictions on who they cover.
Former state Commerce Commissioner Jim Bernstein has criticized the insurance industry for being too restrictive, even as premiums posted double-digit increases. In an interview while still in office last fall, Bernstein said current law makes it too easy for insurers to non-renew.
"This is not a voluntary product. For anyone who's got a mortgage, you've got to have homeowners insurance," Bernstein said. "Even if you're fortunate enough to have your house paid for ... it's a huge investment, and you want insurance coverage because, unfortunately, things do happen. That's what the insurance industry is there for."
There's little dispute the industry has been hit by a series of extreme weather years, beginning with the tornadoes and storms of 1998. From that year through 2001, the industry paid out almost 60 percent more than it collected in premiums in Minnesota.
The industry shelled out $1.4 billion more than it took in, and that doesn't include operating expenses. Tom Mohn is underwriting operations supervisor for State Farm, the state's largest homeowners insurer.
"Who would have ever thought that number one, we would have had this many consecutive storms; number two, the stock market did what it did do; number three, even though we've got a bad economy -- had a terrible economy, the stock market's going down -- the cost of repairing a home is doing nothing but going up. You have three factors there that we've never seen before," says Mohn.
Mohn says two five-year periods illustrate the change. From 1992 through 1996, his company paid about $38 million in wind and hail losses in Minnesota. Over the next five years the company paid nearly 15 times that amount, or more than $500 million.
Mohn says State Farm has to ensure it can cover the costs of the next huge storm. The company has tightened restrictions on new business and imposed premium increases he calls "startling."
"It only makes sense then, for us -- as a company that wants to lower the rates and be competitive for the long run in the market -- to only keep that business that's very best, that represents the least exposure to loss," he says.
Mohn says State Farm non-renews few people, but is concerned about the cost and availability of insurance, but non-renews few people.
Officials with the Insurance Federation of Minnesota say the problem of rising non-renewals is small, because only a tiny fraction of homeowners in Minnesota have had to rely on the Fair Plan.
But some observers say the industry shares some of the blame when customers like Lynn Johnson file too many claims. Jim Doepke with American Family, the state's second largest homeowners carrier, doesn't dispute that.
"We, the industry, to a large extent created the market, we created the product," says Doepke. "We created the expectation and the advertising that shows, hey if you have this type of situation, this is covered and this is covered. So yeah, no question about it."
Last January, State Rep. Greg Davids, R-Preston, and an insurance agent himself, said it seemed too easy to non-renew someone. But now Davids, who chairs the House Commerce Committee, says complaints have subsided.
"It's much quieter than it was. We'll have hearings throughout the state this summer on these issues, because we want to make sure that the people are being protected and treated fairly," says Davids. "There seems to be less urgency, but yet it's an issue we shouldn't just walk away from."
Officials with the state Commerce Department, which regulates the insurance industry, say they're concerned about consumers losing coverage and insurers losing money. But they say it's a cyclical industry, and the market will soften eventually. And, they point out, last year losses returned to a more normal level.