Colorado’s property insurance market is deteriorating rapidly due to continued costly wildfires and hailstorms, a new report finds.

As a result, premiums are rising rapidly and coverage is being relegated to only the largest carriers.

According to a survey by the Colorado Division of Insurance, average insurance premiums jumped nearly 52% in three years, while outside of the top five carrier groups, 76% of insurers cut the number of Coloradans last year.

“The study confirms what insurers already knew – the market is under significant pressure, resulting in higher costs for consumers,” said Lynn Elliott, assistant vice president of state government affairs for the American Property Casualty Insurance Association. “The unique challenges will require some carriers to reduce their exposure to cost controls and ensure they can meet the commitments made under the policies they issue.”

With the state reeling from devastating wildfires, the Colorado Senate passed a bill that tasked the insurance department with studying the “stability, availability and affordability of homeowner insurance.”

The three worst wildfires in Colorado history occurred in 2020, burning a total of 578,000 acres. It was followed by the Marshall Fire in 2021, which caused $513 million in damage in six hours, destroying 1,048 residential structures.

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

A recent and consistent phenomenon in Colorado is rate hikes as insurers scramble to remain stable and solvent. Hurricane-prone states like Florida and Louisiana have seen similar situations over the past two decades.

Many property insurers either failed or decided the risks were too high and left those markets, leaving lawmakers to cobble together solutions from building reinsurance funds and paying property owners to reinforce roofs.

It’s just a simple matter of dollars and cents, Elliott explained.

“The research confirmed that residents are facing a tough market and insurers are emphasizing loss control through strict underwriting and enforcement of risk mitigation measures and higher rates to transfer that risk,” he said. “Continued inflation and an increase in natural disasters around the world, including in Colorado, are driving up costs that are impacting the affordability of insurance.”

Increasing premiums

The survey found that property owners are paying nearly 23% more for insurance starting in 2022, and more than a third of carriers have canceled 10% of their policies in the state.

An equally shrinking market, where smaller insurers write fewer policies, leaves the bulk of the property coverage business in the hands of the largest carriers. Even so, growth has stalled among the top five carriers, the study reported.

Need residual insurers?

The study also addressed the potential need for a “residual” insurer, a last resort created by states for insured property rejected for traditional coverage. Florida and Louisiana offer state-run Citizens Insurance Corporation, though officials struggle to manage policy counts at both agencies.

Colorado lawmakers are considering creating similar residual insurers in the state. Stakeholders are keeping three things in mind, the study noted:

1. Ensuring plans can provide an insurance market for high-risk assets;

2. Limiting Voluntary Market Disruption;

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

Whatever solution is offered to stabilize the Colorado property insurance market, insurers want to be at the table, Elliott said.

“Policymakers must avoid new laws and regulations that will exacerbate current market conditions, such as extending mandatory coverage or introducing new requirements that make it harder for insurers to manage their risks,” he said. “We also need to work to identify which segments of the market need support and solutions that help restore market stability and expand options for consumers.”

Insurance Newsnet Senior Editor JOhn Hilton has covered business and other bits in daily journalism for more than 20 years. John can be reached at [email protected]. Follow him on Twitter @INNJohnH.

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