Homeowners in Boulder County are grappling with significant increases in home insurance premiums and facing outright coverage denials as climate-related risks intensify. This challenging situation is prompting some residents to question whether they can afford to remain in their homes or rebuild after a disaster.
State officials are actively seeking solutions, including a new state-backed insurance program designed to support Coloradans excluded from the private market, alongside measures aimed at limiting insurer profits and reforming fire risk modeling to potentially lower premiums. However, the pace of these solutions isn’t fast enough for many affected residents.
The Boulder Reporting Lab interviewed over 20 residents throughout Boulder County – including those residing in Boulder, Superior, Nederland, Erie, Lafayette, and Longmont – who have recently experienced either a loss of insurance coverage or substantial premium hikes. Half of those interviewed reported that their premiums had doubled; for a few, the increase was nearly triple.
At least six homeowners located within or near the City of Boulder’s wildland-urban interface reported that their insurance policies were canceled. Some were informed that the decision was due to wildfire risk; others received no explanation. Notably, one homeowner, despite having a fire risk score of zero, still had their coverage dropped. Certain insurance companies have also stopped insuring more expensive homes.
Kristina Miller Olsen, a resident of Boulder’s Knollwood neighborhood, was dropped by Nationwide last year when the company ceased insuring homes valued at over $1 million. She purchased her home in 2007 for just under $1 million, and its estimated value has since increased to over $3.5 million, according to Zillow.
Her home, which backs onto open space, experiences both increased property value and heightened wildfire risk. Olsen expressed concern that if a fire destroyed her home, the insurance payout might not be sufficient to cover reconstruction costs.
“That worries me, because we have a fair amount of retirement savings in our property valuation,” she said. She eventually secured a new policy through State Farm, but her premium more than doubled, increasing from $4,510 to $11,947.
“Coupled with our property taxes, the ability to afford where we live is decreasing rapidly,” she said. “It stresses me out. If this rate continues to rise, it’s an uncontrolled expense.” Olsen sought advice from a city Wildfire Partners specialist on affordable fire mitigation strategies, such as adding metal barriers near her deck and removing a neighbor’s wooden fence. She plans to implement these changes in the spring but doubts they will significantly impact her premium.
The financial strain is exacerbating the affordability challenges in Boulder County. Peggy Taylor, a 66-year-old nurse living in Coal Creek Village in Lafayette, is reevaluating whether she can maintain her home. Her HOA fees, which include insurance, increased dramatically from $130 to $530 after the community’s insurance premiums doubled.
Taylor, who plans to retire soon and lives on $1,800 in Social Security, would have only $330 left each month for other expenses after paying her mortgage and HOA fees.
“That’s not going to cut it,” she said.
A Statewide Insurance Crisis
The issues extend beyond the Boulder area. Statewide, the average homeowner’s insurance premiums rose by 52% between January 2019 and October 2022, according to the Colorado Division of Insurance. Furthermore, about 1% of Colorado homeowners are now experiencing policy cancellations – a rate that, according to the Colorado Sun, was once uncommon but has become standard across the country.
Colorado insurance companies attribute higher premiums to a combination of factors, including inflation, fraud, and regulations that drive up disaster rebuilding expenses. However, climate change is a major contributing factor as well.
According to state insurance commissioner Michael Conway, Colorado’s hailstorms are becoming more severe and frequent, currently accounting for 50% to 60% of insurance claims. In addition, wildfires are becoming more frequent, destructive, and costly. Nationwide, insurance costs are rising faster than home values, weakening homeownership as a sound investment.
First Street, a climate risk research firm, predicts that over 5 million Americans will relocate this year due to climate-related threats, with an additional 50 million expected to move in the next three decades.
State Initiatives to Lower Home Insurance Costs
State leaders are undertaking several measures to stabilize the market and reduce costs.
Fire Risk Modeling Reform
A proposed bill (HB 1182) would require insurers to update wildfire risk models more frequently, consider community-wide mitigation efforts, and allow homeowners to appeal their risk scores. State officials believe these actions should help lower premiums. Conway noted that insurers are not fully accounting for local and state fire prevention work.
“We’ve been telling communities for years, for decades, that they really need to mitigate their community to make homeowners’ insurance more affordable and more available,” Conway said. “So if the models aren’t incorporating that mitigation, it’s unacceptable.”
If passed, HB 1182 could ease costs for City of Boulder homeowners who face a new city ordinance requiring them to take steps to harden their homes. It could also help those already working to reduce fire risk, like Olsen.
Limits on Insurer Profits
A draft bill, sponsored by Boulder state Sen. Judy Amabile and others, aims to limit the profitability of insurance companies in Colorado by establishing a “loss ratio requirement.” This regulation ensures that insurers pay out a specific percentage of the premiums they collect in claims. Insurers typically need a loss ratio below 80% to remain profitable, meaning they pay out less than 80 cents for every dollar collected, with the remaining amount covering administrative costs and profits. When the ratio is too high, insurers lose money.
“If they’re north of a dollar, they’re losing a lot of money,” Conway said.
If the ratio is too low, insurers may be overcharging customers.
Hail and Wildfire Protection Programs
The legislation also proposes grants to help homeowners fortify their roofs against hail and establish a wildfire catastrophe reinsurance fund to reduce risk for insurers, foster competition, and stabilize rates.
A New State-Backed Insurance Option
For homeowners who have already lost coverage, the state is launching a Fair Access to Insurance Requirements (FAIR) Plan by the end of March. This program will provide coverage for high-risk properties, with major insurers sharing the financial burden.
However, FAIR Plan premiums won’t be cheap. The law mandates that they be “actuarially sound,” which, according to Conway, means they must charge enough to cover the risk. The plan will insure homes for damages up to $750,000. Those needing more coverage will have to purchase wrap policies on the private market.
One potential risk: If a major disaster, like another Marshall Fire, affects FAIR plan policyholders, the program may lack sufficient funds to pay claims. In such instances, private insurance companies would cover the shortfall, potentially passing those costs on to other policyholders. This situation is already anticipated in California following the devastating LA fires.
Long-term, Conway hopes to stabilize the private market so that the FAIR Plan becomes obsolete.
“My ultimate goal is we don’t have a single home in the FAIR plan,” he said.
