Colorado homeowners and businesses unable to get property insurance from private companies could obtain expensive, bare-bones coverage from a quasi-governmental insurer of last resort under a bill introduced Thursday in the state legislature.
The measure, sponsored by three Democrats, is aimed at preparing the state for a future filled with more wildfires and other natural disasters fueled by climate change.
Dozens of states already have state-run or state-regulated property insurers of last resort. But until now, state officials said, there hasn’t been a need in Colorado. The 2021 Marshall fire in Boulder County and the 2020 East Troublesome fire in Grand County, however, shifted the conversation as residential and commercial property owners started being rejected by private insurance companies.
Hundreds of homes were destroyed in each blaze, causing billions in damage.
“I don’t think we’ve actually heard that anybody can’t get insurance yet,” said Rep. Judy Amabile, a Boulder Democrat and lead sponsor of House Bill 1288. “But we can see that the handwriting is on the wall. If we set this thing up and then it never gets used, that would be super. But that’s probably not what’s about to happen.”
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The Colorado Sun spoke last year with people in wildfire-prone areas of the state who have struggled to find property insurance coverage on the private market.
Sen. Dylan Roberts, an Avon Democrat who represents mountain areas at high risk of being affected by wildfire, says he has heard from constituents who have been dropped by their property insurance providers. Amabile said she knows of a group of people in a Boulder neighborhood whose private property insurer, Chubb Insurance, declined to renew their policies.
A spokeswoman for Chubb declined to speak to The Sun last year about dropping coverage for some property owners in Colorado.
“I think we are taking a very proactive step here to prepare for what might be a major problem going forward,” said Roberts, who is also a lead sponsor of the bill.
Here’s how Colorado’s property insurer of last resort, modeled after Kentucky’s program, would work:
- The governor would appoint a nine-member board by Jan. 1, 2024, that would have six months to develop a nonprofit to serve as the property insurer of last resort. Private companies that offer insurance in Colorado would be responsible for coming up with $10 million in startup costs, $5 million of which could be passed on to customers. The board, whose members would include several representatives from the insurance sector, will determine how much each private company would be responsible for kicking in. The bill doesn’t call for the state spending money to get the program up and going.
- Amabile said property owners would not get liability or contents coverage under the state plan. “It’s just going to be a bare-bones plan,” she said, “but you will then be able to go and get those other things from insurance companies because they will have less exposure if they’re not insuring all of it.”
- To be eligible for coverage under the state plan, property owners would need to demonstrate that they are unable to get insurance from a private company, including by producing “revocation” letters from insurers denying coverage.
- The bill sponsors want to cap how much coverage Coloradans could get under the plan to $1 million for residential property owners and $5 million for commercial property owners. Additionally, the bill sponsors want property owners to have to regularly demonstrate that they need the plan because they can’t get coverage on the private market.
Without home insurance, it’s nearly impossible to secure a mortgage which dramatically limits who can buy or sell a home. There’s also immense financial risk in owning a property without insurance coverage.
Coloradans would not be eligible for coverage under the plan simply because their property insurance rates have increased.
“This will be (a) product of last resort — almost a safety net — to make sure that someone can secure property insurance,” said House Speaker Julie McCluskie, a Dillon Democrat who is also a lead sponsor of the bill. “This is not to be used widely and in replace of (private) insurance provider products.”
Colorado officials want to prevent Colorado’s property insurer of last resort from becoming like the one in Florida.
Florida’s Citizens Property Insurance Corporation is the biggest state-managed property insurance program in the U.S. In August, the nonprofit funded by policyholders surpassed 1 million policies and became the largest property insurer in the state. Nearly 28 million people live in Florida, which is frequently battered by hurricanes that wipe out entire communities.
The bill’s sponsors hope that after being assessed fees to cover the $10 million in startup costs, private insurers that operate in Colorado won’t have to pitch in more money. But the bill says that if premiums charged by the state insurer don’t cover its costs, the private sector would be on the hook.
McCluskie said the bill was drafted with input from the insurance industry and the Polis administration, whose insurance commissioner, Michael Conway, told The Sun last year that the state needed an insurer of last resort.
Carole Walker, executive director of the Rocky Mountain Insurance Information Association, an insurance industry trade group, said she appreciated the sponsors’ willingness to work with insurance carriers on the bill.
“We’ve met in (McCluskie’s) office several times, we’ve been able to bring in company executives and experts,” Walker said. “We have been meeting with the Division of Insurance since last summer.”
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Still, Walker said, the insurance industry has some concerns about the bill. They’d like to see its implementation be slower and have more say on the board overseeing the state plan, also known as a “fair plan.” Walker said there are also concerns about how much power the governor’s administration will have over the plan, which she said could subject the program to political whims.
“This needs to be set up as a business and it needs to be run as a business,” she said. “We support fair plans as an industry, they just need to be right. And, unfortunately, we have a lot of experience with fair plans that have done it right and wrong.”
Lawmakers will have to move quickly on the bill. The legislative session ends May 8.
The measure hasn’t been scheduled yet for its first committee hearing.