A crisis in homeowners insurance, intensified by the increasing frequency of natural disasters like wildfires and hail storms, has gripped Colorado. Average annual home insurance costs have surged by $818 since 2020, making Colorado the state with the fourth-highest insurance premiums nationwide, according to a July research paper by Benjamin Keys and Philip Mulder. In some areas, like Phillips County, home insurance premiums have become 55% more expensive in the last four years, data show.
Homeowners are now facing the potential of policy non-renewal and cancellation following even a single claim filing, according to insurance agents and officials.
“There is a real risk right now that insurance companies will not renew you if you file a claim,” stated Michael Conway, Colorado’s insurance commissioner, during an October insurance town hall. “Does it make sense for people to be non-renewed if they filed one claim in 20 years?” Data released by the U.S. Senate Budget Committee reveals that insurance non-renewals in Grand County, Colorado, have increased by approximately 77% in 2023 compared to 2018.
Colorado homeowners are scrambling to prevent cancellation notices and maintain their mortgages. Trevor Donahue and Trish Krajniak, who purchased their mountain dream home in Nederland in October, moved from Littleton with their children. They bought homeowners insurance from Allstate because it was the only major insurer willing to cover them. Initially, an Allstate agent told them there was “nothing incredibly serious” to fix after a home inspection.
However, shortly after the closing, Allstate sent a cancellation letter. The couple was given until January 11, 2025, to conduct extensive wildfire and hail mitigation on their property or risk policy cancellation, mortgage default, and losing their home.
“None of it was outlandishly unreasonable, what they were asking,” Donahue said. “The biggest problem is that they gave us a 60-day deadline from when we closed. We’re covered in snow, there’s ice on the roof, and they’re making no exceptions for an extension whatsoever.”
Next year, Colorado lawmakers plan to introduce two significant bills to address the home insurance challenges. The state is also preparing to offer insurance plans to homeowners who are no longer eligible for coverage in the private market, which will likely be available in early 2025. Donahue and Krajniak feel this “insurer of last resort” can’t come soon enough.
“We have a gun held to our head right now,” Krajniak said. “I have no guarantee if we complete all of these steps, and spend the several thousand dollars, that [Allstate] will actually continue to insure us.”
In mid-December, following a complaint with Colorado’s Department of Regulatory Agencies, Allstate offered an extension for the couple to complete the required mitigation, thus allowing them to keep their insurance for the time being. Allstate’s corporate office did not answer questions about cancelling homeowner policies before mitigation work is completed.
Colorado is facing affordability and availability issues, leading to insurance carrier retrenchment in certain areas and increased average annual premiums, with fewer home insurance policies being offered.
“Our market in Colorado is wildly different than what it was at the end of 2022,” Conway said during a July insurance town hall with residents struggling with insurance availability. An industry report released in March 2023 revealed that smaller and medium-sized insurance carriers were reducing the number of policies they underwrote. However, the top five insurers – Allstate, State Farm, Liberty Mutual, USAA, and American Family – partially offset this trend. The situation has since changed.
“Colorado has seen some of those top five insurers start to write fewer policies. And we do have little pockets of availability concerns popping up,” Conway explained. Areas now experiencing insurer pullbacks include Jefferson County (e.g., Evergreen) and the foothills of Boulder and Colorado Springs. While wildfire risk is primarily behind availability issues, insurance unaffordability is largely due to damage from hail.
“Hail is by far the biggest driver of losses in most years for the homeowners insurance market,” Conway said. “In 2023, [hail reports] went up dramatically over the previous highest year…both in the overarching number of events, but also in the severity of those events, too.” Conway estimates that hail accounts for an average of 55 to 70% of home insurance premiums in the state. In May, Colorado experienced nearly $2 billion in overall losses from a single hail storm that hit the Denver metro area. These brief but severe hailstorms, which can inflict substantial roof and car damages, occur repeatedly throughout the year. The number and severity of billion-dollar disasters of all types have dramatically risen in the state since 1980. According to Benjamin Keys, a real estate professor at the University of Pennsylvania, the highest-risk areas nationwide are seeing substantially greater premium increases than lower-risk areas.
Insurers depend on reinsurance, which is essentially insurance for insurance companies, to minimize their risk. Reinsurance costs have approximately doubled since 2017 because of rising rebuilding costs after disasters and high interest rates, Keys explained during a July town hall meeting. “A lot of these challenges for insurance companies will continue, and that they’ll be passing these costs on in the primary market to homeowners,” Keys said. Insurance companies also utilize analytical models to determine risky zones, making them more likely to raise prices or end coverage.
At the state and community levels, wildfire risk reduction strategies include tree pruning, prescribed burns, and grassland grazing. Homeowners can reduce their risk by installing hail-resistant shingles, trimming nearby trees, and sealing their homes to prevent ember entry. The National Association of Insurance Commissioners estimates that structural adjustments and vegetation clearance can reduce a home’s wildfire risk by up to 75%.
However, Conway expressed concern that the models used to assess wildfire risk are not decreasing rates even after mitigation efforts.
“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,” Conway told CPR News. “Third-party companies are doing a terrible job of building mitigation into their models,” he exclaimed during an October town hall. “And it really pisses me off. And it should really piss you off too.”
Chris Dirolf checked the perimeter of a large, wood-paneled home in Nederland, trudging through a foot of snow to tag trees to cut down. For two hours, Dirolf assessed the home using an iPad and a 50-question assessment, prepared by Wildfire Partners, a Boulder County program that mitigates wildfire risk. Since 2014, this program has offered a homeowner certification program designed to reduce insured losses and protect homes by use of science, according to Jim Webster, the program manager. Certification involves property-level mitigation and ends with a certificate homeowners can submit to insurers.
The process can be time-consuming, typically costing homeowners thousands of dollars and over a year to get certified. Certification is only offered in the foothills and mountainous areas of Boulder County, although the county offers other mitigation inspections in urban areas. However, the program has been effective. In 2016, the Cold Springs Fire in Nederland destroyed eight homes and seven other structures. Eight homes within the burn zone were Wildfire Partners certified, and all eight survived.
Dirolf noted areas for improvement, such as patching and caulking holes in the siding to prevent ember entry and pruning smaller lodgepole trees.
The certification program may not decrease a homeowner’s insurance premium or guarantee renewal. However, Webster asserted during a July townhall: “People in our community aren’t mitigating for any discount. They’re doing it to save their homes.”
Conway anticipates the introduction of two bills during the upcoming legislative session to address the issues. One bill, sponsored by Rep. Kyle Brown (D-Boulder) and Rep. Brianna Titone (D-Jefferson), would encourage models to better account for mitigation efforts at the homeowner, community, and state levels. The bill would also allow homeowners to appeal their wildfire risk score and receive more information about potential insurance discounts.
Another bill would establish two significant state programs. One would provide homeowners with financial aid to install hail-resistant roofs to qualify for insurance discounts. Conway hopes this program will eventually decrease hail claims and lower home insurance costs statewide. The second program would establish a state reinsurance fund designed to offset wildfire insurance costs embedded in premiums.
In 2023, Colorado lawmakers passed the FAIR plan to provide insurance for homeowners and businesses shut out of the standard market. However, coverage is limited, and premiums may still be exorbitant because the plan is not meant to compete directly with private market insurance. Conway estimates that tens of thousands of homeowners and businesses might be eligible for this plan and could enroll next year.
When Donahue and Krajniak received their cancellation notice, they were offered assistance by Allstate. The company and a broker the couple found through the state could not locate an alternative insurance option. With their deadline extension, the couple no longer had a looming deadline. But they still worry about securing insurance in the future.
“There’s massive relief that we don’t have this looming deadline,” Krajniak said. “But I am very concerned if Allstate decides to drop us in the future, we’re in the same place. It’s scary.”
