Wildfires, Hail Take Toll on Colorado Homeowners Insurance

By | July 22, 2013

It’s safe to say there’s a lot going on in the homeowners insurance scene in Colorado, where homeowners insurance rates are likely to be on the rise for some time.

Insured losses from the recent Black Forest fire are now estimated to be approaching nearly $300 million, making it the third time in four years that losses from wildfires went over that mark. Last year saw the state’s fourth most costly hail storm wreak in excess of $321 million in damage, and those hail storms follow several years in which the state has been treated to hail events that have put insured losses well into the hundred-millions.

Then in May, the Homeowners Insurance Reform Act of 2013 was signed by Colorado Gov. John Hickenlooper. The act allows wildfire victims more time to make claims, it enables the opportunity for increased living expenses, it requires mandatory policy updates every two years and it mandates that policies be written in plain language.

That’s one among several ongoing government steps to address rising rates and tighter underwriting standards in place by Colorado insurers, but some worry the new regulations combined with the increased catastrophe losses are part of a growing problem for Colorado homeowers and agents who say they are struggling to write insurance in an increasing number of areas in the state.

“I think rates in Colorado are going to go up significantly over the next several years,” said Shane Christley, a personal lines producer with Denver-based Van Gilder Insurance Corp.

Christley believes those hikes will be driven by recent wildfires and storm losses, and by the act as well.

Carole Walker, executive director of the Rocky Mountain Insurance Information Association, said that while it’s not uncommon for Colorado to experience hail storms each year that result in $100 million-plus in damage, when the plague of wildfires the state has experienced in recent years is added to the mix, “it’s starting to play itself out.”

“Unfortunately we have been in cycle of catastrophes,” she said. “Unfortunately, in Colorado, we are seeing homeowners insurance premiums rise at a higher rate than we are nationally.”

An Insurance Research Council study issued last fall shows that for first time Colorado now ranks among the top 10 states with catastrophe-related claims. Catastrophe related claims as a percentage of all claims in the state in 2011 was 39 percent, and it was 50 percent in 2010 and 64 percent in 2010, the report shows. The average claim severity, while on the rise nationally, rose 258 percent in Colorado to $7,819 from 1997 to 2011.

The Colorado Division of Insurance has been reporting recent filings by homeowners insurers that reflect roughly a 15 percent overall increase in premiums.

Driving those increases is six-year run of extremely bad weather, bad luck, or both.

By RMIIA’s count: In 2008 an EF3 tornado and hail storm struck Windsor in May causing $206.9 million in insured losses; in 2009 three major storms totaled for $1.4 billion in insured losses; the Fourmile Canyon fire northwest of Boulder in 2010 resulted in $217 million in insured losses; a July hail storm across the Colorado Front Range in 2011 is credited with $164 million in insured losses; the Waldo Canyon and High Park fires of 2012 combined for a total of $567 million in losses, and the hail storm in June of that year caused $321 million in insured losses.

Those losses have made it less than profitable to be a homeowners insurer in Colorado, Walker said.

For agents like Christley the wildfires have made their job more difficult, especially when they clients who live in or around a high fire danger area.

“I see Colorado being similar to Florida,” he said. “How they’re looked at for hurricanes, we’re going to be looked at the same way in terms of hail damage and fire.”

The rising premiums are already getting close scrutiny from the government. Hickenlooper in January signed an executive order creating the Task Force on Wildfire Insurance and Forest Health. The topics being tackled by the task force include reviewing issues regarding insurance coverage on the 2012 wildfires, exploring how to give policyholders a better understanding of insurance coverage and the idea of a state fund of sorts to help broaden the availability of homeowners insurance in Colorado.

Walker is not a big fan of the state fund idea, as she believes it could further reduce insurers’ appetite for writing in Colorado.

“We’ve still been able to keep insurers in this market,” she said. “That is the key. By allowing them to compete and adequately adjust premiums, we can keep them there.”

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