South Dakota Homeowners Face Rapid Insurance Premium Increases Amid Weather Risks
Homeowners in South Dakota are experiencing significantly higher insurance premiums than in most neighboring states, driven by severe weather events and rising rebuilding costs. Over the past seven years, South Dakota's average homeowner's insurance premium increased by 41%, outpacing the national average hike of 34% and inflation increase of 24%. Neighboring states Minnesota and Montana also saw premium increases above the national average but lower than South Dakota. While South Dakota's premiums are high, they are lower than states such as Nebraska, Kansas, and Oklahoma, which face frequent tornadoes and hailstorms and report average premiums exceeding $4,000 annually.
The Federal Reserve Bank of Minneapolis identifies catastrophic weather as a primary factor influencing premium hikes in the Upper Midwest. Nearly half of the U.S.'s billion-dollar weather disasters in 2023 occurred in the Ninth Federal Reserve District, which includes South Dakota. Regional risks include wind and hailstorms, in contrast to hurricanes in Florida and wildfires on the West Coast. These weather-related losses are compounded by inflation in construction costs, contributing to higher insurance rates.
South Dakota's insurance market is further impacted by substantial crop insurance payouts. From 2001 to 2022, farmers in the state received nearly $10 billion in federal crop insurance payments for losses due to drought, excess moisture, and hail. South Dakota ranks third nationally in drought and excess moisture payouts and sixth in hail-related claims. This pattern highlights the vulnerability of agriculture to climate variability and extreme weather, influencing overall insurance cost dynamics.
The financial strain from rising premiums affects both urban and rural residents, including homeowners, renters, and farmers. Increased insurance costs lead to higher monthly expenses, posing challenges, particularly for individuals on fixed incomes. The continuing trend of extreme weather events, as projected by analysis from the Federal Reserve Bank of Minneapolis, suggests that insurance rates in South Dakota and the broader region will likely keep increasing.
These developments underscore the importance of monitoring weather-related risks, construction cost inflation, and agricultural impacts in analyzing insurance market trends in the Upper Midwest. Insurance professionals and policymakers should consider how these factors affect affordability, coverage availability, and risk management in both property and crop insurance sectors within the region.