In recent years, homeowners in Colorado have faced a skyrocketing cost of property insurance, coupled with a growing number of nonrenewals and insurers pulling out of the state. In fact, homeowners insurance premiums in Colorado have surged by nearly 60% over the past five years, creating a major financial burden for residents. With policies being canceled or nonrenewed and insurers exiting the state, Colorado’s homeowners insurance crisis is intensifying.
In this blog post, we’ll dive deep into the reasons behind the growing homeowners insurance crisis in Colorado, explore the impact of nonrenewals, and examine what the state is doing to help homeowners in need. This is a vital issue for anyone living in Colorado or thinking of moving there, and it’s important to understand what’s going on and what can be done about it.
What’s Driving Colorado’s Homeowners Insurance Crisis?
The most significant issue contributing to Colorado’s insurance crisis is the escalating premiums and increasing number of nonrenewals. This has led to financial strain on homeowners, many of whom are seeing their premiums double or even triple, sometimes even without making any claims. So, what’s behind these developments?
1. Extreme Weather Events: Wildfires and Hail Storms
Colorado is no stranger to extreme weather, and it is precisely these events that are increasing both the cost and the risk associated with homeowners insurance.
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Hail: Colorado is located in an area known as “Hail Alley,” which experiences a high frequency of destructive hailstorms. These storms cause significant damage to homes, driving up the cost of insurance premiums. In 2023 alone, Colorado saw nearly 800 reports of hailstorms, breaking previous records and further pushing up insurance costs.
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Wildfires: The increased frequency and severity of wildfires across the western United States, including Colorado, are another significant factor contributing to higher insurance premiums and nonrenewals. As wildfires become more common and intense, insurers are becoming more reluctant to take on the risk of insuring properties in fire-prone areas.
2. Rising Rebuilding Costs
It’s not just the weather events causing higher premiums. The increasing cost of rebuilding homes after a disaster is also playing a significant role.
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Inflation, especially in construction materials, has driven up the cost of rebuilding homes, which, in turn, drives up the cost of homeowners insurance premiums.
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In some areas, insurers are forced to raise rates significantly in order to cover the potential cost of rebuilding after a catastrophe.
3. Insurer Losses and Nonrenewals
It’s no secret that insurance companies are struggling financially due to rising claims costs, particularly from weather-related damage.
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Between 2013 and 2022, Colorado’s homeowners insurers experienced an underwriting loss of 18.6%. This means that for every dollar insurers earned in premiums, they paid out $1.18 in claims. This has led many insurers to make tough decisions, including nonrenewals or dropping coverage entirely, as was the case with American National Group.
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Nonrenewals are not limited to Colorado; they’re a growing trend nationwide, with many insurers in high-risk areas like California, Florida, and Louisiana also choosing not to renew policies. According to a U.S. Senate Budget Committee report, Colorado’s nonrenewal rate is higher than Texas’s, demonstrating the widespread impact of extreme weather on insurance markets.
The Impact of Nonrenewals on Homeowners
Imagine receiving a nonrenewal notice from your insurer and being told that no other company is willing to provide coverage. For many homeowners in Colorado, this has become a harsh reality. Nonrenewals are most common in wildfire-prone or hail-affected areas. In towns like Evergreen and Conifer, homeowners are increasingly finding it difficult to secure insurance coverage.
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A significant number of homeowners in rural Colorado counties have experienced drastic hikes in their premiums, making it unaffordable for some to maintain coverage at all. In one such case, a homeowner’s premium increased by 275%, forcing them to dip into retirement savings to cover the difference.
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Homebuyers are also being affected. Areas once considered desirable to live in are now deemed too risky by insurers, especially in the wake of frequent and severe weather events. This has led to a situation where it’s harder for prospective buyers to find homes in certain areas or to secure financing for those properties.
What is Colorado Doing to Address the Crisis?
In light of these issues, Colorado’s state officials are actively seeking solutions to help homeowners find affordable coverage and ensure access to insurance for all residents.
1. State-Sponsored Insurance Options: The FAIR Plan
The Fair Access to Insurance Requirements (FAIR) Plan is a state-backed program designed to help homeowners who can’t find coverage elsewhere. The FAIR Plan offers insurance to homeowners who have been turned down by at least three other insurers. However, while it provides access to coverage, the premiums tend to be higher than standard policies.
2. Regulatory Action and Oversight
Colorado Insurance Commissioner Michael Conway and the Colorado Division of Insurance are working closely with insurers and consumers to address the rising costs and availability issues. The state has started rolling out programs that aim to make insurance more affordable and accessible, particularly for homeowners in areas at high risk of wildfires or hail damage.
Looking Ahead: What Can Homeowners Do?
While state efforts are underway to address the crisis, homeowners themselves also need to take proactive steps to mitigate the impact of rising premiums and nonrenewals.
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Shop Around for Coverage: Don’t accept the first quote you receive. Shop around and compare prices from different insurers. Sometimes, switching to a different provider can result in substantial savings.
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Increase Your Deductible: Opting for a higher deductible can lower your premium. However, be sure that you can afford the deductible in case you need to file a claim.
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Look Into Bundling Policies: If you have other insurance needs, such as auto insurance, bundling your policies with the same insurer can often lead to discounted rates.
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Invest in Home Improvements: Certain home improvements, such as installing a new roof or fire-resistant materials, can lower your risk profile and potentially lead to lower insurance premiums.
Conclusion: The Growing Homeowners Insurance Crisis in Colorado
Colorado’s homeowners insurance crisis is a complex issue driven by factors such as extreme weather events, rising rebuilding costs, and insurer losses. While state-backed programs like the FAIR Plan offer some relief, homeowners are still feeling the financial strain of skyrocketing premiums and increasing nonrenewals. It’s essential for homeowners to stay informed and take action to secure the best possible coverage for their homes.
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Photo credit: The Colorado Sun
