Colorado’s Fair Access to Insurance Requirements (FAIR) plan, enacted in 2023, is set to take effect this spring. This initiative establishes an “insurer of last resort” designed to offer property insurance to homeowners and commercial property owners who are otherwise unable to secure coverage.
The plan, which provides policies up to $750,000 for homeowners and up to $5 million for commercial properties, was introduced as a bill by Colorado House Representatives Judy Amabile, Dylan Roberts, and House Speaker Julie McCluskie. The legislation directly addresses rising insurance costs and property losses due to wildfire risks. The state’s Department of Insurance is tasked with forming a board of directors to establish eligibility criteria for the plan. Public comment on the draft regulations took place in February.
According to the Rocky Mountain Insurance Association (RMIA), average homeowners insurance premiums in Colorado have increased by a significant 57.9% between 2018 and 2023. This rise is attributed to factors including inflation, escalating construction and home repair costs, and the increasing frequency of severe weather events such as hailstorms and wildfires. Colorado ranks second nationally for hail insurance claims and has experienced 48 billion-dollar disasters between 2010 and 2023, the RMIA reported. Notably, two of the most costly wildfires in the state’s history occurred in the past four years, resulting in the destruction of over 1,300 homes.
Insurers assess fire risk when issuing policies using protection classes ranging from 1 to 10. These classes are primarily based on a property’s proximity to the nearest fire station and the availability of water. Tyler Scherffius, an insurance agent in Buena Vista with Mountain Insurance, explained the implications of these classes: “(Protection class) 1 being like downtown Denver next to a fire station and 10 being like a cabin out in the woods.” Scherffius has observed that insurance carriers in Colorado are becoming more selective about the fire classes they are willing to underwrite.
“We definitely see a lot of cornerstone carriers pull out of the market in Colorado and then a lot of other carriers phase out where they’re comfortable writing,” Scherffius said. “Looking at Chaffee County, we’ve got fire protection classes from Class 4 to Class 10, with 10 being the most dangerous in the eyes of insurers. We’ve seen carriers who have previously written insurance policies for classes as high as 10 completely stop writing property coverage altogether in our area, like protection Class 4 or 5. We’re starting to see a lot of carriers take a really hard look at that when they decide if they want to write policies or not.”
He further noted that a limited number of carriers remain “that are still pretty open to everything, and that’s kind of causing a bottleneck with people who are losing their coverage or shopping for coverage. All of a sudden there’s this huge influx for this handful of carriers who are still willing to write for suitably higher-risk homes. That’s causing a problem right now.”
Scherffius anticipates that the FAIR plan will alleviate some of this pressure, acting as a “very last resort insurance product.” He stated, “Basically, anybody who can’t get insurance from anywhere else, that’s where they’re going to have to go.”
A fact sheet available on the FAIR plan website, coloradofairplan.com, acknowledges that the plan “offers limited coverage at a higher cost than standard insurance. It is meant to ensure that no property goes uninsured, but standard insurance is generally more cost-effective and comprehensive.”
Scherffius pointed out that prior to turning to the state’s insurer of last resort, homeowners who are unable to find coverage in the standard insurance market can seek options from surplus line insurers. These insurers are not admitted to the state’s insurance market, meaning they do not adhere to regulations set by the Department of Insurance.
Scherffius explained the role of these insurers, stating, “Typically, these carriers are going to be more susceptible to taking on higher risks. The coverage is going to be a little more limited on what they offer. Premiums are going to be much higher, but they still are offering coverages where your typical Cornerstone insurance carrier may not write the coverage.”
