A new report finds that the state of Colorado’s property insurance market is rapidly deteriorating due to costly wildfires and hailstorms.

As a result, the premium is rapidly increasing and coverage is left to only the largest carriers.

Average premiums jumped nearly 52% in three years, according to the study by the Colorado Department of Insurance, while outside the top five carrier groups, 76% of insurers reduced the number of Coloradans they covered last year.

“The study confirms what insurers already know — the market is under a lot of pressure, driving up costs for consumers,” said Lynn Elliott, assistant vice president for state government affairs at the American Property Casualty Insurance Association. “The unique challenges have resulted in some carriers needing to reduce their exposure to control costs and ensure they can deliver on the promises they make under the policies they make.”

With the state reeling from devastating wildfires, the Colorado Senate passed a bill tasking the Department of Insurance with studying the “stability, availability, and affordability of home insurance.”

Three of the worst wildfires in Colorado history occurred in 2020, burning a total of 578,000 acres. This was followed in 2021 by the Marshall Fire, which caused $513 million in damage in less than six hours, destroying 1,048 apartment buildings.

Consultants Oliver Wyman completed the study using accurate data provided by insurers, as well as feedback provided by carriers and industry associations.

One recent and consistent phenomenon in Colorado is rising rates as insurance companies scramble to stay stable and solvent. Similar situations have occurred over the past two decades in hurricane-prone states such as Florida and Louisiana.

Many property insurers either failed or decided the risks were too great and left those markets, leaving lawmakers to piece together solutions from boosting reinsurance funds and paying homeowners to boost ceilings.

Elliott explained that it was just a matter of dollars and cents.

She said, “The study confirmed that the population is facing difficulty in the market, and that insurance companies emphasize controlling losses by tightening underwriting procedures and enforcing procedures to reduce risks and raise prices to transfer this risk.” “Ongoing inflation and an increase in natural disaster events around the world, including Colorado, are driving up costs affecting insurance affordability.”

High premiums

The study found that landlords have paid nearly 23% more for insurance since the start of 2022, and more than a third of carriers have canceled 10% of their insurance policies in the state.

Also of concern is a shrinking market, as smaller insurers write fewer policies, leaving the bulk of the property coverage business to the largest carriers. Despite this, the study stated, growth has plateaued among the top five carriers.

Is a residual insurance company needed?

The study also addressed the potential need for a “residual” insurer, the insurer of last resort created by the state for the insurer’s property denied to traditional coverage. Florida and Louisiana offer state-run Citizens Insurance, though officials have struggled to maintain policy accounts in both entities.

Colorado lawmakers are considering creating a similar remaining insurer in the state. The study indicated that stakeholders have three considerations in mind:

1. Ensure that the plan can provide insurance market for high-risk real estate;

2. Reducing voluntary market disruption.

3. Ensure that there is no undue financial burden on the insurance industry or taxpayers.

Whatever solutions are offered to stabilize the Colorado home insurance market, Elliott said, insurers want to be on the table.

“Policy makers should avoid new laws and regulations that would exacerbate existing market conditions, such as increasing mandatory coverage or introducing new requirements that make it more difficult for insurers to manage their risks,” she said. “We also need to examine which parts of the market need support and work to identify solutions that help restore market stability and expand choice for consumers.”

InsuranceNewsNet Senior Editor J.John Hilton has covered business and other businesses in over 20 years of daily journalism. John can be reached [email protected]. Follow him on Twitter @INNJohnH.

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