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Last resort for insurance coverage considered by state lawmakers

Property owners pay more for home insurance in Colorado – others struggle to find coverage, or are simply being denied.

COLORADO, USA — It's getting more expensive to buy home insurance in Colorado. And for some property owners, it's also getting harder to find coverage, thanks to our state's high risk of wildfire and other natural disasters.

For the people who can't get any coverage, state lawmakers are now considering a last-resort option.

HB23-1288 would create the Fair Access to Insurance Requirements plan (FAIR), to help people who are unable to find coverage in the regular insurance market for their home or business. In addition to creating a policy option property owners can buy as a “last resort,” the bill also establishes an association, managed by a board of directors, to administer the plan.

“About six months ago I started to hear from constituents that they were not being renewed and having trouble finding any other insurance company that would cover them,” said State Representative Judy Amabile (D-Boulder County), who represents parts of Colorado exposed to higher fire risk including Boulder, Clear Creek, Gilpin and Larimer Counties.

“I think most of those people, if not all of them, were able to find somebody to insure their home. But we can see out on the horizon that we're going to get into a situation where there are some areas where people are just not going to be able to find insurance,” she said.

Amabile described coverage under the FAIR plan as “barebones” with strict requirements for eligibility, and caps on coverage.

“You have to prove you can’t get insurance on the regular market,” she said “These plans will be very bare bones, they'll just cover the structure. They won’t have liability, won’t have contents. Just the structure.”

She said the plans will also likely cost more, even with the caps. Amabile said residences can be insured up to $750,000 under this plan, and businesses up to $5 million.

“It’s meant to be temporary,” she said. “The hope is, in a year or two or three, things will change in a way that your property becomes insurable. Fire mitigation, or when [insurance companies] run their data, your property has moved from a zone where they’re not going to insure to a more insurable zone.”

“It's insurance that you don’t want to have, but you have to have,” explained Carol Walker, executive director of the Rocky Mountain Insurance Association. The association is working with the Division of Insurance and lawmakers drafting the bill.

“We have a lot of experience with FAIR plans, when it’s done wrong and when it's done right,” she said. “When it’s done wrong, it really jeopardizes the housing market, the insurance availability, and also the state’s economy. We’ve seen disastrous results in Florida, in Louisiana, we have insolvencies every week with insurance companies.”

Walker said a “done right” FAIR plan would be created to take the pressure off the insurance market, but not compete with private insurance and become a more attractive option for customers.

“It can’t be an insurer of choice. It can’t compete with private insurance. And the goal of any FAIR plan is to have no one in it,” she explained.

“We need to run a FAIR plan like a business," she continued. "And insurance companies need to have a majority seat on the board because they have experience with FAIR plans and they’re the shareholders. They’re the ones who are going to be paying for the FAIR plan – both to get it stood up, and if we do have a catastrophic event, the hope is that those rates will be actuarily sound – that the FAIR plan will charge an appropriate, accurate rate, to be able to pay out a claim when somebody has that worst day.”

A new study from the Colorado Division of Insurance found premiums are increasing across the state. 

The average homeowner saw their premium increase by 51.7% between January 2019 and October 2022. At the same time, the study found Colorado had one of the worst profitability margins for insurers, and some companies are shrinking their coverage in this state.

All of that has state leaders worried about insurance accessibility in Colorado.

Kitty Stevenson is one of those homeowners struggling to find coverage.

She owns a home in Boulder County’s Sugarloaf Mountain neighborhood.

“We’ve been having the experience, it started as community experience, where rates were getting raised and raised and raised. Then after the Marshall Fire – people were getting no renewals. Some people were getting canceled, and everyone’s rates were getting raised,” she said.

Stevenson said she bought her property in 2008, which is located in the burn scar of the 1989 Black Tiger Fire. She tore down the existing home on the property then rebuilt a brand new home with a major focus on wildfire prevention on the property.

“The running joke in my community is – if there’s a fire, people will come to my house,” she said, pointing out she is a firefighter, herself.

“My house was purposely made out of construction grade dry wall. My floor is literally all concrete. “I’ve got all-natural grass, no trees, and about 10 feet around my house that’s rocks. Completely uninsurable. Uninsurable. Denied, denied.”

Stevenson also said she has external and internal sprinklers in and around the home. A metal roof. Even a large arena for her horses with sand in it.

“You can literally stand in the middle of it and watch the fire around you,” She joked. “And I am uninsurable, it’s crazy.”

Stevenson said she generally supports the idea of a “last resort” option, but certainly doesn’t want to have to use it.

“In theory it's great. I do not feel it will accomplish everything it needs to accomplish,” she said, pointing out the home prices in the mountains often far exceed the coverage caps set by this bill. If mountain homeowners can’t get coverage, what happens when you cant insure your home?

“What does that do? Half of Colorado – we’re going to have abandoned homes in the mountains now?”

It's not an ideal situation for anyone. Amabile hopes this bill is one step in finding a solution.

“We’re hoping people are able to avoid a catastrophic situation where they can't get any insurance, can't sell their house, can't buy a house they want to buy. Mortgage companies can't make loans, insurance companies can't sell insurance,” she said.

“Our hope is… you’ll be able to insure your home, your property, on the FAIR plan. And then because [the private insurance companies] are not taking on a massive amount of risk, insurance companies will sell you liability on top of that. Maybe another insurance will sell you contents. Then no one is taking on a big hit if something happens.”


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