A homeowners insurance crisis, exacerbated by a surge in natural disasters, has gripped Colorado. According to a July research paper by Benjamin Keys and Philip Mulder, the average annual cost of home insurance has increased by $818 since 2020, making Colorado the state with the fourth-highest premiums in the nation. In counties like Phillips County, insurance costs have climbed by 55% in just four years.
Even filing a single claim can now have lasting repercussions, as insurance agents and officials note. Michael Conway, Colorado’s insurance commissioner, stated during an October insurance town hall, “There is a real risk right now that insurance companies will not renew you if you file a claim.” He questioned the fairness of non-renewals after a single claim over an extended period. Data from the U.S. Senate Budget Committee reveals that areas like Grand County, Colorado, witnessed a 77% increase in insurance non-renewals in 2023 compared to 2018.
Colorado homeowners are struggling not only with rising premiums but also with preventing policy cancellations, which can jeopardize their mortgages. An example of the situation is illustrated by the experience of Trevor Donahue and Trish Krajniak, who purchased their mountain home in Nederland in October and relocated from Littleton with their children. Allstate was the only major insurance provider willing to insure them. They needed insurance to finalize the home purchase and secure their mortgage. Donahue was surprised by the initially low rate. An Allstate agent informed them that the home inspection revealed “nothing incredibly serious” to address.
However, shortly after closing, Allstate sent a cancellation letter. Initially, the company gave them until January 11, 2025, to complete extensive wildfire and hail mitigation on their property or face policy cancellation, mortgage default, and loss of their home. Donahue remarked, “None of it was outlandishly unreasonable, what they were asking,” but added that the 60-day deadline given from the closing date, during which they faced snow and icy roof conditions, was unrealistic.
The following year, Colorado lawmakers will introduce significant legislation to address home insurance issues. The state also plans to start offering insurance plans to homeowners who can no longer acquire coverage in the private market, possibly by early 2025. For Donahue and Krajniak, an “insurer of last resort” can’t come soon enough. Krajniak expressed her worries, saying, “I have no guarantee, even if we complete all these steps and spend the several thousand dollars, that [Allstate] will actually continue to insure us.”
In mid-December, after the couple filed a complaint with Colorado’s Department of Regulatory Agencies, the company offered them an extension for mitigation, allowing them to retain their insurance temporarily. Allstate’s corporate office did not respond to questions about their policy cancellation practices before mitigation. Both the affordability and availability of insurance are major challenges. As a result, insurance carriers are issuing fewer policies in some areas. These difficulties affect affordability and mean that premiums are rising. Conway stated in a July town hall, “Our market in Colorado is wildly different than what it was at the end of 2022.”
A March 2023 state industry report showed that smaller and medium-sized insurance companies were decreasing their policy issuance. The top five insurers—Allstate, State Farm, Liberty Mutual, USAA, and American Family—had initially filled the gap. However, according to Conway, some of these top companies have also begun to issue fewer policies, which has led to availability concerns in areas such as parts of Jefferson County, like Evergreen, as well as the foothills of Boulder and Colorado Springs. While wildfire risk is the major cause of availability concerns, insurance unaffordability is largely attributed to hail damage.
Conway highlights hail as a major driver of losses, noting that it accounts for 55 to 70% of home insurance premiums on average in Colorado. A single hailstorm in May caused approximately $2 billion in losses in the Denver metropolitan area. These brief but intense hailstorms can be responsible for extensive damage to roofs and vehicles and occur several times a year. The number and severity of billion-dollar disasters have increased dramatically in the state since 1980.
According to real estate professor Benjamin Keys, high-risk areas nationwide are experiencing significantly higher premium increases compared to lower-risk areas. Another critical problem involves third-party modeling, which can lead to higher premiums. Insurance companies use “reinsurance,” which is basically insurance for insurance companies, to manage their risk. Keys notes that reinsurance costs have doubled since 2017, caused by higher rebuilding costs after catastrophes and rising interest rates. He warns these challenges will continue, and these costs will get passed on to homeowners. Insurance companies also rely on models to assess the risk of specific areas and adjust rates accordingly.
To mitigate wildfire risks, efforts are being made to prune trees, conduct prescribed burns, and manage grasslands. For homeowners, mitigation involves installing hail-resistant roofing, trimming trees close to the house and sealing homes against embers. Structural adjustments and removal of nearby vegetation can reduce wildfire risk by as much as 75%, according to the National Association of Insurance Commissioners.
However, Conway is worried that these models, which assign wildfire risk scores, are not resulting in lower rates, even after mitigation efforts. He told CPR News, “If [models] are not sophisticated enough to incorporate mitigation work that both individual property owners are doing, that communities are doing, we’ve got a significant problem in our market.” He was more critical to homeowners during a town hall meeting, calling third-party models “terrible.”
Chris Dirolf recently assessed the perimeter of a large, wood-paneled home in Nederland to identify areas for improvement, particularly those related to wildfire risk. He used an iPad to complete a 50-question assessment for Wildfire Partners, a Boulder County program that aids in wildfire mitigation. Since 2014, Wildfire Partners has offered a certification program for homeowners, which involves an assessment, property-level mitigation, and ultimately, certification, which can be used to demonstrate risk reduction to insurance companies. Dirolf emphasized that the program is laborious and costly, but it can save homes. During the 2016 Cold Springs Fire in Nederland, eight homes were certified by Wildfire Partners, and all eight survived.
At Frisby’s home, Dirolf pointed out the importance of caulking holes in the siding and pruning smaller trees. He identified an open shed near the house, which Frisby described as a “bomb filled with wood.”
According to Jim Webster, the certification may not immediately lower a homeowner’s insurance premium or guarantee renewal. However, Webster noted during a July town hall, “People in our community aren’t mitigating for any discount, they’re doing it to save their homes.”
Conway anticipates that lawmakers will introduce two bills to address the insurance market issues. One bill, sponsored by Rep. Kyle Brown and Rep. Brianna Titone, would encourage models to better reflect mitigation efforts at the homeowner and community levels. It would also allow homeowners to appeal their wildfire risk scores to get appropriate credit and release more information about insurance discounts. Another bill would create programs to help homeowners install hail-resistant roofs. Eventually, Conway expects that this program will decrease hail claims and make insurance more affordable statewide. The second program would establish a state reinsurance fund to offset the costs of wildfire insurance. Conway said that to participate in the reinsurance program, insurance companies would have to offer coverage in the highest wildfire risk areas in the state.
In 2023, Colorado lawmakers passed a FAIR plan to provide insurance for homeowners and businesses excluded from the regular market. However, the plan has limited coverage, and premiums may be quite high. The state estimates that tens of thousands of homeowners are eligible for the plan and may enroll next year.
When Donahue and Krajniak received their cancellation notice, Allstate offered to help them find alternative coverage on the “excess market.” However, they were unable to find another option by using Allstate or a broker. State law includes a 60-day notice requirement prior to canceling a home policy. The couple feels that Allstate insured them for the minimum time before cancellation, even as other insurers rejected them upfront. Krajniak stated, “It just feels like a money grab.”
With the deadline extension, the couple is relieved to avoid the imminent pressures. However, they are concerned about securing future insurance, even after completing their mitigation work. Krajniak stated, “There’s massive relief that we don’t have this looming deadline, but I am very concerned if Allstate decides to drop us in the future, we’re in the same place. It’s scary.”
