Minnesota homeowners are seeing their annual home insurance rates climb on average from 20 to 25 percent, to $400, as insurance companies continue to recover from wind and hail storms, and tornado seasons of the past several years.

"From 1998 through the present, insurance companies have paid out more in claims than the premiums they've collected," says Bruce Gordon, spokesperson for the Minnesota Department of Commerce (DOC).

Insurers paid out more than $928 million in Minnesota claims in 2001 while collecting $693 million in premiums, according to the DOC. Industry-wide, home insurers had a loss ratio of 143 percent in 2001, meaning they paid out $1.43 in claims for every $1 in premiums that they collected.

Minnesota law allows insurers to immediately impose a rate hike on their customers, and then have it reviewed by the DOC. The department can then ask for additional information and request a hearing before an administrative law judge. For the first time in at least five years, the DOC requested a hearing. Home insurance rates at Kansas City Fire and Marine Insurance Co. rose 98.6 percent this year, and 72 percent at Glens Falls Insurance Co. Both Kansas City Fire and Marine and Glenns Falls are underwriting companies of Encompass Insurance Co.

Jim Dudas, spokesperson for Encompass, says the market has been skewed for several years. "The insurance has been underpriced for several years and this will bring our rates up to a level that will give us a chance to make a profit," he says. A recommendation by the hearing officer is pending. The state insurance commissioner can then rule on the recommendation.

Rate hikes by State Farm Fire & Casualty, American Family Mutual Insurance Co., and Illinois Farmers Insurance Co., which collectively have more than half the total homeowners market, have not been challenged. "They were able to substantiate their rates," Gordon says, "but for all the companies, we're watching them like hawks."