Colorado lawmakers are exploring an unprecedented approach to alleviate the burden of rising homeowners’ insurance costs. The state’s insurance premiums have skyrocketed 58% between 2018 and 2023, making it the fourth highest in the country. According to Insurify.com, the average annual cost for homeowners’ insurance in Colorado stands at $6,079 for $500,000 in dwelling coverage with a $1,000 deductible.
The proposed program involves introducing new fees to help lower premiums while ensuring insurers remain in the state. Colorado faces an average of five natural disasters annually, each exceeding $1 billion in damages, forcing insurers to pay out more in claims than they collect in premiums. Carol Walker from the Rocky Mountain Insurance Information Association (RMIIA) identifies hail as the primary factor driving high premiums, stating that it accounts for up to 60% of policy costs in ‘hail alley,’ which encompasses most of the state.
Proposed Solution
State Rep. Kyle Brown and Speaker Julie McCluskie have introduced a bill that would impose a 0.5% fee on every homeowner’s insurance policy to fund grants for hail-proof roofs and wildfire mitigation measures. This initiative aims to reduce damage from natural disasters and subsequently lower insurance claims. For a $3,000 policy, the additional fee would be $15, contributing to a projected $13 million fund.
Key Components of the Bill
- The fund would support homeowners in installing hail-fortified roofs, which cost about 10% more than standard roofs.
- Insurers would also benefit from the program through access to another $13 million enterprise fund in the event of a large-scale disaster, provided they lower premiums and offer policies in high-risk areas.
Challenges and Concerns
While the bill’s sponsors are committed to its success, there are concerns about its implementation. Walker notes that the bill leaves several questions unanswered, such as how the funds would be distributed following a catastrophic event and how high-risk areas would be identified. There’s also a worry that many insurers might not participate due to the stringent conditions.
Transparency and Mitigation Efforts
Another bill proposed by Brown aims to enhance transparency in insurance rate setting by providing homeowners with a ‘wildfire risk score’ and guidance on how to improve or appeal it. This measure seeks to ensure that mitigation efforts by homeowners are reflected in their insurance rates.
As Colorado grapples with its vulnerable insurance market, lawmakers are pushing for innovative solutions to address the rising costs and ensure that insurers continue to operate within the state. The success of these proposals could set a precedent for other regions facing similar challenges.
