Colorado Bill Targets Insurance Transparency on Wildfire Risk Assessments
Colorado lawmakers are pushing for greater transparency from property insurers regarding how they evaluate a homeowner’s risk of wildfire and how mitigation efforts can lead to lower premiums.
House Bill 1182 is designed to compel insurance companies to share information about their risk models and scoring methods with both homeowners and the state. The bill would also require insurers to explain how these assessments impact insurance costs. Furthermore, the legislation mandates that companies consider individual and community-level wildfire mitigation investments in their evaluations and provide homeowners the right to appeal a property’s risk assessment.
This legislation emerges in response to a dramatic rise in insurance premiums, driven in part by climate change-related weather events, which have made Colorado a more expensive state to insure. According to the state-run division of insurance, Colorado saw a 52% increase in insurance premiums for single-family homes between January 2019 and October 2022. Buildings with higher values, such as multi-story condominium complexes, have experienced insurance costs doubling or even tripling in some instances.
Rep. Brianna Titone, D-Arvada, a primary sponsor of House Bill 1182, noted that homeowners are keen to lower their risks via mitigation measures like home hardening and defensible space – that is, an area where vegetation has been cleared or reduced. However, these efforts don’t always result in reduced premiums. “I think a lot of homeowners are guessing a lot of times what they can do,” Titone said. “And the insurance companies are not really clearly communicating with the homeowners as to what they think they should do.”
“That’s very frustrating to a homeowner who may have spent a lot of time and money investing in this,” Titone added. “But do the insurance companies think that even matters? And how can we convince them that it does.”
The issue is particularly pronounced in Colorado’s mountain communities, where the ever-present threat of wildfires has made mitigation a top priority. Summit County Commissioner Tamara Pogue stated that she hears about property insurance costs almost daily, adding that rate increases of 300% or 400% are not uncommon for homeowners.
“Property insurance is part of housing affordability,” Pogue said. “You have to have it, you have to pay for it.” The county has backed numerous fire mitigation initiatives, including funding seasonal Forest Service employees and requiring defensible space for new developments in its codes. It has also distributed millions in grants from a voter-approved fund to help neighborhoods share the costs of fuel reduction, tree removal, improvements to evacuation routes, and other mitigation strategies.
Summit County was the first in Colorado to establish a dedicated funding source for wildfire mitigation, according to Pogue, approving a property tax increase in 2008 and another in 2018. Pogue noted that these efforts have been successful in lessening fire risk. For example, a small wildfire near the neighborhood in Breckenridge last summer was quickly contained because of fuels mitigation work done 18 months earlier, according to officials.
“I think that homeowners should be given credit for that effectiveness and for the dollars they have invested in that mitigation and right now, in the (insurance) system, there is no consistent way that work is taken into account,” Pogue said. “We should, as a community, be able to recoup some of those benefits here.”
Reforming the insurance industry has been a high priority for Gov. Jared Polis, who has called for increased transparency in risk assessment and price determinations. The industry faced scrutiny during a December meeting of Western state governors, and Polis reiterated his call for insurance relief during his State of the State address to lawmakers last month. Polis stated, “The rising cost of insurance isn’t relegated to homeowners alone. It gets passed on to renters, too.”
Carole Walker, executive director for the Rocky Mountain Insurance Association, stated that insurance companies support both individual and community-level mitigation efforts as a means of decreasing a homeowner’s risk and potentially lowering premiums. However, Walker stressed that lawmakers should avoid policies that could further burden insurance companies operating in the state.
Walker pointed to California, which has seen an exodus of insurers due to what she called a flawed set of legislation that artificially capped rates and barred insurers from using predictive risk models. Colorado is currently the third least profitable state for insurers, following Louisiana and Texas. According to the Rocky Mountain Insurance Association, it ranks second in the country for hail risk and third for wildfire risk.
“Colorado is a high catastrophe risk state for insurance companies,” Walker said. “It’s a cautionary tale. We need to be careful in Colorado, we’re just a few bad public policy decisions away from being California.”
The insurance association, which represents companies in Colorado, Wyoming, Utah, and New Mexico, is seeking amendments to the bill that would hold homeowners’ mitigation work to an industry standard. Walker mentioned that insurers are open to establishing an appeals process and sharing ways homeowners can reduce their risk but cautioned against forcing companies to disclose models protected under intellectual property. She emphasized that any disclosure requirements in the bill must be easy for insurers to comply with. Walker’s greatest concern is legislation that makes doing business in Colorado unviable.
“The stakes are very high on this,” Walker said.
House Bill 1182 is also sponsored by Rep. Kyle Brown, D-Louisville, and Sens. Lisa Cutter, D-Littleton, and Cleave Simpson, R-Alamosa. The bill is scheduled for a hearing and vote before the House Business Affairs and Labor Committee on Wednesday, Feb. 26.
