Home insurance markets are increasingly volatile, partly due to the rising costs of climate-related disasters. In response, more states are stepping in to provide residents insurance options when private companies won't.
In Colorado, recent major wildfires and significant hailstorms, combined with the increased cost of rebuilding due to inflation, were among factors that caused home insurance companies to report the 4th-largest losses in the nation over a five-year period in 2023.
“There's just significantly more risk for the insurance industry,” said Kelly Campbell, the executive director of the state's new Fair Access to Insurance Requirements (FAIR) Plan Association.
The FAIR Plan Association is a nonprofit entity established by the Colorado legislature in 2023 to create a "last resort" insurer for homeowners and businesses unable to get private property insurance, either because companies are refusing to renew policies or are not issuing new ones in certain high-risk areas.
“For people, their home is often their largest investment,” Campbell said. “It has not only financial importance, but emotional and family importance to them, and so we want to make sure that there's some level of coverage to protect that property.”
After the Marshall Fire, the most destructive in Colorado history, some residents faced increased insurance premiums or were told companies were not issuing new policies. These squeezes on the insurance market are expected to continue in Colorado, especially on the Front Range, and elsewhere in the West. However, the state isn't yet sure how many residents will apply to the FAIR Plan.
Campbell’s team submitted the plan of operation to the Colorado Division of Insurance for approval before a July 1 deadline. Colorado is the first state to create a new FAIR plan in the U.S. in decades, but more than 30 states have them. They're typically more expensive and offer less coverage compared to private insurance.
According to state legislation that established Colorado's plan, it will cover up to $750,000 for a residential home. However, it will reimburse only the depreciated value of the home and items, not the cost of replacement or rebuilding.
The FAIR Plan also excludes coverage for liability and certain risks, such as damage from frozen pipes, meaning consumers may need to purchase additional insurance.
Douglas Heller, the director of insurance at the Consumer Federation of America, argues that Colorado’s plan and others should cover more than the bare bones. He said that when additional policies are required, there is a higher likelihood that some risks remain uncovered.
“It's why we would much rather have a comprehensive policy,” he said, “because it ensures that people have what they need.”
But Campbell said FAIR plans are intended to be basic. Colorado is hoping to avoid issues other states have seen with their own plans, such as Florida, where the insurer of last resort is now that state's largest home insurer. To qualify for Colorado’s FAIR Plan, homeowners will need to provide proof from three insurance companies showing they cannot obtain private insurance.
Policies under the FAIR Plan should be available to consumers in Colorado early next year. New Mexico is the only other Mountain West state with a FAIR plan. Nevada is currently considering developing one amid increasing wildfires.
This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Nevada Public Radio (KNPR) in Las Vegas, Boise State Public Radio in Idaho, KUNR in Nevada, KUNC in Colorado and KANW in New Mexico, with support from affiliate stations across the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting.
