Committee hears wide-ranging testimony on condo and townhome insurance as members seek options for rising premiums and shrinking markets

March 12, 2024 — The Minnesota House Commerce Finance and Policy Committee devoted the bulk of its March 12 meeting to an informational presentation and discussion about common interest communities (CICs) — condominiums, town-home associations and similar ownership structures — and the commercial insurance products those associations buy.

Why it matters: Committee members and witnesses described rising insurance premiums, higher deductibles, and shrinking insurer capacity in association markets. Witnesses said associations often purchase master policies in the commercial market (which is exempt from the department's routine filing review), leaving regulators with limited data on how many carriers serve the market and whether associations have moved to the surplus/excess market. Several testifiers warned that the gap could leave associations with fewer affordable options and less regulatory protection.

Key testimony and findings: Peter Brickwiddie, senior director for insurance sustainability and climate at the Minnesota Department of Commerce, told the committee associations typically purchase in the commercial market and are therefore not required to file master policies for department review. He said that limits Commerce's ability to measure carrier participation and that the department has seen a "pretty significant jump" in consumer complaints related to association and HO-6 policies over the past three years. Brickwiddie said associations may be turning to the surplus/excess market, where state oversight and guaranty fund protections do not apply.

Aaron Cocking, president and CEO of the Insurance Federation of Minnesota, cited three drivers of rising premiums: inflation for replacement materials and labor, the increasing frequency and severity of weather-related losses, and legal developments that expand liability exposure. "When those actual losses exceed those predictions, premiums have to rise to cover those differences," Cocking said, adding that higher claims costs and market exits by some insurers reduce the pool of options for associations.

Patrick Hynes of the Community Associations Institute's Minnesota chapter provided aggregate figures during committee testimony: CAI estimates about 8,500 associations and some 1.2 million Minnesota residents live in CICs. Hynes described statutory requirements that associations carry insurance and to promptly repair or replace common elements; he also explained reserve-account rules and loss-assessment mechanisms that can result in special assessments for unit owners if an association faces a large deductible or uninsured cost.

Consumer protections and disclosures: Committee members discussed existing disclosure rules: a buyer who signs a purchase agreement must receive association documents and has a 10-day right to rescind the agreement after reviewing disclosures, including financial condition and rules. Testifiers suggested more plain-language guidance for buyers and better consumer education earlier (for example, high-school financial literacy) so prospective purchasers understand master policies, loss-assessment exposure and reserve funding.

Regulatory gaps and possible next steps: Commerce staff recommended the committee hear from the state's insurers-of-last-resort and consider options to fill the coverage gap for associations. Witnesses and members discussed forming a working group or subcommittee to explore potential policy responses, improving consumer-facing disclosures, and cracking down on bad-actor contractor behavior that can inflate claim costs.

What was not decided: The session was informational; no formal policy was adopted and committee members did not vote on legislation in this portion of the meeting. Members asked the department and stakeholders to follow up with data and to meet with a smaller working group to develop potential legislative or administrative responses.