Colorado Home Insurance: The Market is Shifting

Colorado’s stunning landscapes come with a price: heightened risks for homeowners. From the fierce winds that whip across the Front Range to the devastating wildfires that scar our mountains, our state presents unique challenges for the insurance industry. If you’re a Colorado homeowner, you’ve likely noticed rising premiums and tighter coverage restrictions. This isn’t just a Colorado issue, but a symptom of a larger, nationwide shift. Let’s delve into the specifics of what’s happening and how it impacts you.

I recently wrote about the hard insurance market and in particular how that makes obtaining coverage more difficult and increases rates. I also wrote about us being at the bottom of the hard market. I still believe that to be true but whether we stay at the bottom for weeks, months or a year remains in question. Here I want to describe the situation we find ourselves in and what we might be able to do while we watch for further signs of recovery.

Colorado’s Unique Risks:

• Wind and Hail: Colorado’s Front Range is notorious for intense hailstorms and high winds. These weather events can cause significant damage to roofs, siding, and windows, leading to frequent and costly insurance claims.
• Wildfire Threat: As climate change fuels hotter and drier conditions, the risk of wildfires in Colorado has dramatically increased. Areas bordering forests and grasslands are particularly vulnerable. The increasing severity and frequency of wildfires are putting immense strain on insurance companies.
• Increased Rebuilding Costs: Inflation and supply chain disruptions have driven up the cost of construction materials and labor. This means that when damage occurs, rebuilding homes is more expensive than ever, leading to higher claim payouts for insurers.

The Insurance Industry’s Response:

• Premium Increases: To offset the rising costs of claims, insurance companies are raising premiums. This is a direct result of the increased risk and the higher cost of rebuilding.
• Coverage Restrictions: Insurers are also tightening coverage restrictions, such as increasing deductibles or limiting coverage for certain types of damage. Some insurers are even choosing to not write new policies in certain high-risk areas.
• Nationwide’s Colorado Decision: Recently, Nationwide Insurance has made the decision to stop writing new homeowners insurance policies in Colorado. This move highlights the severity of the risk assessment and the challenges insurers face in our state. This is an example of insurers pulling out of high risk areas. When a large carrier such as Nationwide makes this kind of decision it compounds issues for the rest of the industry that does not have capacity to absorb the additional risk.

California’s Impact on the National Landscape:

• State Farm’s Rate Battles: The ongoing battle between State Farm and California’s insurance commissioner over rate increases is a prime example of the tension between insurers and regulators. They are currently playing a dangerous game of chicken to see who swerves first. State Farm has requested an emergency 22% rate increase. After an initial denial, it seems that Commissioner Ricardo Lara is now considering the request.
• California’s Regulatory Environment: California’s insurance commissioner has been actively working to protect consumers from excessive rate increases. However, this has created a challenging environment for insurers, leading to some companies limiting or ceasing operations in the state.
• Ripple Effects: What happens in California, one of the largest insurance markets in the country, has ripple effects across the industry. Colorado insurance companies are watching these developments closely, as they provide insight into the potential for regulatory changes and market shifts.

What This Means for Colorado Homeowners:

• Shop Around: It’s more important than ever to shop around for the best insurance rates and coverage. Don’t settle for the first quote you receive. Contact an independent agent who can keep you informed on industry changes and has multiple carriers to look at.
• Understand Your Policy: Carefully review your policy to understand your coverage limits and deductibles. Pay special attention to exclusions related to wind, hail, and wildfire damage.
• Consider a Wind/Hail Deductible Buyback Policy: This is a standalone policy that does one job, pays you back when you have a claim with a high wind/hail deductible on your home policy.
• Mitigation Measures: Take steps to mitigate risks, such as installing hail-resistant roofing, clearing brush around your home, and creating defensible space.
• Prepare for Rate Increases: Be prepared for potential rate increases, and factor these costs into your budget.
• Stay Informed: Keep up-to-date on changes in the insurance market and regulatory environment.

Conclusion:

The insurance landscape in Colorado is evolving rapidly. The increasing frequency and severity of natural disasters, coupled with rising rebuilding costs, are creating a challenging environment for both insurers and homeowners. By understanding the risks and taking proactive steps, you can protect your home and your finances. Staying informed and being prepared are the best tools a homeowner can have in these changing times.