Climate change worsens Colorado’s insurance woes

Coloradans facing 50% to 100% price increases on home and auto insurance — or outright cancellation — as weather disasters mount may find relief in a state last-chance fund, but the conditions may be so onerous they won’t use it, a Colorado Sun panel of experts warns.

Prices could be so high for so-called “last resort insurance,” required by a 2023 state law, that Colorado homeowners might need it but not really want it when they look at the details, said Carole Walker, director of the regional insurance trade group Rocky Mountain Insurance Information Association.

“We don’t think this is impossible. We think there are real solutions,” Walker said, as part of the Sun’s “Climate Change Hits Home” panel, which premieres Tuesday at 6 p.m. Free registration is available here.

“The problem is that there is no silver bullet. You have to look at multifaceted solutions, from mitigation to reducing overall risk and then looking at how we can keep private insurance in the market,” Walker said. “I think we’re trying to get there.”

Colorado’s high-risk property insurance pool, set to launch Jan. 1, will have to charge consumers high fees and cap damage awards at $750,000 per home to stay solvent, Walker said. “The goal of the insurance industry, for those customers, is to be a niche in the market, not a panacea in the market. So that we can help the state recover, be an element of the solution, not become part of the problem. I know that’s a tough pill to swallow for insurance consumers who are just looking — I wish this was a better option. Unfortunately, it needs to be actuarially sound.”

Walker, who was joined on the panel by Colorado Insurance Commissioner Michael Conway and Doug Heller, insurance director for the nonprofit Consumer Federation of America, agreed that home and auto insurance costs have risen dramatically across the state in the past two years. And more homeowners in wildfire-prone areas are being told they can’t have insurance at all.

“And that’s a reflection of climate change” and the increased frequency of severe droughts and the weather that comes with it, Conway said. “That’s a reflection of the fact that we’re a state that really has two catastrophes that affect us. We have hail and we have wildfires. And I think people don’t realize how big of an impact hail has on our state.”

Conway noted that hail damage costs in Colorado are second only to those in much more populous Texas.

“And it’s no longer the case that hail season ends once we get into June or July. Hail season really persists throughout the summer, and it’s similar with wildfires,” Conway said. The result is that Colorado property insurers as a group have lost money in eight of the past 11 years, he added; insurers must be able to write high enough premiums to pay claims and stay solvent.

Colorado ranked second only to Kansas in the increase in catastrophic weather events over the past 10 years, at 275%, Walker said. Meanwhile, insurers must pay the same high inflation costs as consumers for claims involving labor, lumber, glass and other goods, Walker said. California waited too long to pursue meaningful insurance reforms that would have kept more insurance companies writing policies in more areas of the state, he said.

“We don’t want to end up where California is now,” Walker said.

California-based Heller agreed, but added that regulators and policymakers need to be vigilant, not just cooperative, with insurance companies whose charges are scaring away vulnerable consumers.

According to research from the Consumer Federation, “about 6 million American homes are uninsured, representing about $1.6 trillion in market value,” Heller said. Banks that hold a mortgage require insurance to protect the asset. Uninsured homeowners often would not have the ability to replace or rebuild a damaged home, Heller said.

“That is extremely concerning and that data is from 2021. Our expectation is that when the 2023 data comes out later this year, we will see even more uninsured households,” he said.

Heller agrees that climate change has increased costly weather events, but has a different conclusion.

“This is not something new, and in fact, for decades the insurance industry and regulators have been asked to pay more attention to the impact of climate change on insurability, on property insurance markets and on how it will affect our homes. And for years, unfortunately, too many regulators have stuck their heads in the sand and allowed business as usual,” Heller said.

“So when someone in Jefferson County suddenly finds out their insurance isn’t going to be renewed, they wonder, ‘Wait a minute: Last year, the insurance company didn’t tell me there was a problem. They charged me my premium, just like they did the year before and for decades before that. ’ Climate change didn’t just happen in 2023,” Heller said.

Insurance companies want a thoughtful and economically viable transition to the states’ new high-risk pools, Heller said, while consumers who are being terminated are not being offered the same consideration.

“I just wish we would think a little bit more about how we transition to this, rather than how we make consumers endure this pain right away,” Heller said.

Hear more from the panel about the precarious state of property insurance in Colorado and how a hand-picked board is designing the high-risk pool. at the Colorado Sun’s “Climate Change Comes Home” event.