This post is part of a series sponsored by AgentSync.
If Colorado is any indication, several state insurance departments may be working on legislation to ensure consumer transparency.
Across the United States, homeowners in high-risk wildfire areas face a growing crisis. It’s not just “affordability” though. Many homeowners cannot secure insurance coverage even if they are willing to pay a high premium. And it’s not just wildfires: Hurricanes, tornadoes and floods are also becoming more frequent and severe, meaning homeowners in many states are scrambling to insure their property.
The situation has led a number of states to introduce Fair Access to Insurance Requirements (FAIR) plans, also known as insurers of last resort. These state-run insurance programs are intended to provide homeowners with coverage for wildfires when no private insurers will. Colorado is the latest state to adopt a FAIR plan, which will begin providing coverage in 2025.
Current Homeowners Insurance Challenges in Colorado
While certainly not the only state with these issues, Colorado is on the list of states with record wildfire activity, especially over the past 20 years. This persistent and growing problem has resulted in challenges for insurers, which have been unprofitable for eight out of the past 11 years, according to data compiled by the New York Times. As insurers understandably struggle to stay in business and remain solvent, their remedies are taking a toll on consumers.
Among Coloradans’ biggest homeowner insurance concerns are:
- Being dropped by a current insurance company with little warning
- Being afraid to file an insurance claim for a covered loss for fear of being dropped
- Being required to carry out fire suppression measures with no guarantee of continued coverage
- Interest rate increases of more than 100 percent over the last two years
- Access to homeowner policies only when wildfire is excluded from coverage
- Unreasonable or impossible mitigation requirements, such as a homeowner removing trees from neighboring properties
A particularly important concern that has caught the attention of state insurance regulators is the criteria on which various insurance companies base their wildfire risk assessments, and thus their willingness to insure a particular property and how much they charge to do so.
Fire risk ratings can vary dramatically from one insurer to another, depending on what criteria they use to assess it. For consumers, this presents a major problem because they have little to no insight or control over their ability to get insurance (or get it affordably). The lack of standardization and transparency has prompted state regulators in Colorado to take aim at how insurers assess fire risks and introduce new legislation to find solutions.
New Colorado Laws on Insurance Appraisal Transparency and Standardization
The Colorado Division of Insurance has heard the pain of consumers. The state took a first and important step by creating a new FAIR plan to help homeowners who can’t get insurance through traditional means in the busy market. Now the state is going a step further with several new laws to solve the home owners’ problems.
Senate Bill SB23-166: Wildfire Resilience Code Board
This bill was signed into law on May 12, 2023, and requires the state to establish “a wildfire resiliency code board, and in connection therewith require the wildfire resiliency code board to adopt model codes requiring governing bodies with jurisdiction in an area within the wilderness-city interface to adopt codes that meet or exceed the standards set forth in the model codes…”
In short, Colorado does not have building codes that provide a uniform level of fire protection measures for new and remodeled homes. That shortage cost the state $101 million in Federal Emergency Management Agency (FEMA) aid, according to reporting by ProPublica. This hurts homeowners and adds to the amount of damage a fire can cause in the state, leading to even higher insurance premiums or decreased coverage.
“The bill establishes a board of 21 members tasked with developing standards for new and substantially remodeled homes in high-risk areas, including rules for the use of fire-resistant building materials and clearing of vegetation around homes.”
- https://www.propublica.org/article/colorado-law-to-require-more-wildfire-resistant-homes
The theory is that a board made up of stakeholders from government, the insurance industry, builders, fire protection agencies and others will be able to create a set of standards that will harden homes to prevent the type of catastrophic losses the state has seen in recent years. such as the 1,084 homes destroyed by the Marshall Fire.
House bill HB24-1315: Remedial study
This bill was signed into law on June 6, 2024, and requires the Department of Insurance to conduct a study regarding the remediation of homes that have been damaged by smoke, soot, ash, and other pollutants as a result of a fire.
Prior to this law, there were no uniform standards for homeowners to remediate homes that had been damaged by fire-related pollutants. Homeowners were left unsure of how best to clean and repair their homes after a fire, which could lead to long-term health risks and pressure on the housing market. Consistent fire repair practices can also benefit homeowners and insurance companies in the long run by hardening these homes against future fire damage.
It is important that insurance policies cover full and adequate remediation after a fire, but there is currently no universal standard for what this means. This can leave homeowners paying out of pocket or unable to recover from fires at all. The study will consider existing practices, standards, guidelines, indoor air quality standards and insurance coverage related to residential fire remediation so the insurance division can set statewide standards that all homeowners’ insurance coverage must meet.
House Bill HB24-1108: P&C market study
This bill was signed into law on May 31, 2024, and authorizes the Insurance Commissioner to conduct a study of the market for property and casualty insurance policies that will assess current market conditions, affordability of coverage, potential sustainability measures, and the impact of forming captive insurance companies.
One provision of the law is that the commissioner will investigate and report back on the criteria insurance companies use to underwrite property damage insurance for homeowners and associations such as condominiums and HOAs. These criteria are currently a bit of a black box for consumers, especially when it comes to assessing fire risk and how much to pay for premiums based on fire risk. The Colorado Insurance Commissioner’s Office stated at a community meeting on August 3, 2024 that this study will help shed light on how insurers quantify risk, with a future goal of standardizing fire risk assessments across companies and geographic regions of the state.
Regulatory changes are always closer than you think
As insurers face the ongoing challenge of setting rates correctly, consumers struggle to pay those premiums and regulators strive to ensure fairness for homeowners and public safety. This means that new laws that apply to the insurance industry are regularly proposed and passed throughout the United States
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