As hail storms sweep across the Denver Metro area and eastern plains of Colorado this spring, auto and homeowner’s insurance is top of mind for many. Premiums have been increasing, that is obvious. Less obvious is that some homeowners are receiving cancellation notices and/or having trouble finding new coverage. Mountain properties are feeling the impact, not as much from hail and severe storm risk but from wildfire risk too. All of these risks are running the insurers out of the state. Because of that, a bill passed in 2023 creating the Fair Plan for Colorado homeowner’s insurance.
Big losses for insurance companies in Colorado
Colorado has had some big wildfires with big property losses in the last few year. Coupling that with storm damage and other insurable events ranks Colorado as the 4th highest costs for insurers in the US over the last five years. Insurance companies are for profit companies. Premiums need to account for the risk in an area. Some companies are determining less exposure to Colorado’s high cost environment is better. Writing fewer Colorado homeowner’s insurance policies is in their best interest. As a result, not only are premiums increasing but insurance is becoming more difficult to get in Colorado.
Colorado government responds
According to HB23-1288, the growing threats by wildfires and other natural disasters have put pressure on the residential and commercial insurance markets. If homeowner’s are unable to secure homeowner’s insurance for their property, the lack of coverage will frustrate and erode the housing market in those communities. These concerns brought forth the FAIR Plan, Fair Access to Insurance Requirements, in Colorado.
The bill creates a non-profit with a governor appointed board to create and oversee a homeowner’s insurance company of last resort for Coloradans. All companies providing Colorado homeowner’s insurance are members that must pay membership fees to belong. Any profits or losses sustained are distributed to all members. Coverage offered will be up to $750,000 for residential homes and up to $5 Million for commercial buildings.
The non-profit is being set up according to the new law. It should be in place and open for business by January 2025.
Concerns about impacts
The first concern that arises from creating the Fair Plan for Colorado homeowner’s insurance is if it gives the okay for insurance companies to pull out. There is a company willing to take the higher risk. There is no need for that company to take the risk. In reality, if an insurance company does not want to do business in Colorado they will not. No insurance company insures a Colorado home because they are worried no one else will provide insurance.
The fact that all Colorado insurers are required to be members of the Fair Plan Association does create some concern. There is expense involved in that. They share in the profits and losses incurred by this high risk insurance. That may cause companies to reevaluate. However, there are already 33 states that offer high risk, state run insurance and insurance companies still do business in those states. This may not be unusual for a nationwide insurance company.
The law states the Fair Plan for Colorado homeowner’s insurance has coverage limits. What happens when a multimillion dollar home cannot get public market insurance? Will the homeowner only be able to have $750,000 of insurance coverage? Or will insurance companies offer supplemental policies to cover the uninsured amount?
The Fair Plan is only an option when other insurance is not available. There is no consideration for affordability. If insurance is available but the premium is more expensive than the homeowner can afford, there is no state option. If the Colorado homeowner’s insurance of last resort is too expensive, the homeowner has no other option. Unfortunately, this means some homes will still go uninsured. Albeit, likely fewer than moving forward without the Fair Plan for Colorado homeowner’s insurance.
More is needed
The Fair Plan is not a perfect plan but maybe it will help some homeowner’s remain insured. More needs to be done to fill the gaps that are already beginning to appear. Reach out to your elected officials and urge them to do more.
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