Jeffrey Wade
Home insurance rates in Colorado have been increasing over the past few years, with some facing a 600% increase in their insurance premiums. This is due to a variety of factors, including severe weather conditions such as wildfires and hail, which have caused billions of dollars in insured losses. In response to these extreme weather events, insurers are changing how they factor in climate and extreme weather risks, with some private insurers even dropping policyholders as the risk of these threats grows. As a result, homeowners in Colorado are facing higher insurance premiums and may struggle to find affordable coverage.
| Characteristics | Values |
|---|---|
| Average increase in insurance costs | $818 more per year compared to 2020 |
| Colorado's rank in insurance premiums nationwide | 4th highest |
| Increase in insurance costs in Philips County | 55% more than four years ago |
| Increase in insurance non-renewals in Grand County | 77% in 2023 compared to 2018 |
| Increase in Colorado homeowners' premiums over five years | Nearly 60% |
| Increase in Colorado homeowners' premiums over three years | 52% |
| Increase in insurance costs over the last three years | More than 50% |
| Colorado's rank in profitability | 3rd worst |
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What You'll Learn
Rising natural disaster rates
Colorado has experienced a range of natural disasters, from wildfires to floods, avalanches, tornadoes, and hailstorms. These events have had devastating impacts on human lives, properties, and the environment. The increasing frequency and severity of these disasters have contributed to the rising cost of homeowners' insurance in the state.
Wildfires, in particular, have become a significant concern for Colorado residents. The state has experienced wildfires in multiple years, including 2010, 2012, 2013, and 2018, resulting in the destruction of over 1,250 homes. The risk of wildfires has led to insurance companies cancelling policies or refusing to offer coverage in certain areas, leaving homeowners struggling to find alternative options.
Hailstorms are another major contributor to the rise in insurance costs. Hail has caused significant property damage in Colorado, with an estimated $5 billion in losses over the past decade. In 2019, a massive hailstorm broke the state's record, with ice measuring almost five inches in diameter falling in the eastern region. Hailstorms have resulted in injuries and fatalities, with one tragic event in 1979 claiming the life of an infant.
In addition to wildfires and hailstorms, tornadoes are also a frequent occurrence in Colorado, with an average of 46 to 47 tornadoes per year. While most tornadoes are relatively weak, the state has experienced deadly and destructive twisters, such as the Windsor tornado in 2008, which caused extensive damage and injured 78 people.
The state has also faced other natural disasters such as floods, avalanches, and landslides. While not as frequent as wildfires or hailstorms, these events have resulted in significant losses and fatalities. In 2013, a flood in Colorado caused nearly $4 billion in damages, and the state experienced its worst landslide in 2014 due to heavy rains.
The increasing frequency and severity of natural disasters in Colorado have had a direct impact on the availability and cost of homeowners' insurance. Insurance companies are responding to the rising risks by increasing premiums, cancelling policies in high-risk areas, or even leaving the state altogether. As a result, homeowners are facing challenges in obtaining affordable coverage, with premiums increasing by nearly 60% in five years.
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Insurers leaving the state
Colorado is facing an insurance crisis, with carriers issuing fewer home insurance policies in certain areas, while policies now cost more per year on average. The state's insurance commissioner, Michael Conway, has acknowledged the market's drastic changes, with insurance affordability and availability challenges.
Insurers are leaving the state, and those that remain are issuing fewer policies. This has resulted in less competition in the marketplace, which is detrimental to consumers. With fewer companies vying for business, there is less incentive to keep prices down.
American National Group, for example, is abandoning Colorado altogether. This has left homeowners like Karen Murray Boston scrambling to find new insurance for her 1918 farmhouse in Fruita. She only discovered the cancellation of her policy when she called her agent to inquire about rising rates.
The Colorado Division of Insurance stated that they had not heard of insurers other than American National leaving the state as of January 2025. However, there is a trend of policies being canceled in communities with a higher risk of wildfires. As a result, Colorado is introducing its insurance for homeowners who cannot obtain coverage elsewhere.
The current regulatory and legislative environment in Colorado is also a factor in insurers leaving the state. While state officials deny that policy initiatives are the cause, some insurance companies view the environment as hostile to investment and business development, particularly in healthcare. For instance, Bright Health was fined $1 million for poor claims payment performance and communication issues before pulling out of Colorado.
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High-risk areas
The rising cost of homeowners' insurance in Colorado is largely driven by the increasing frequency and severity of natural disasters, such as wildfires and hail storms. These events have led to a surge in insurance claims, which has, in turn, made insurers more cautious about providing coverage in high-risk areas.
Insurers are now more selective about the policies they offer, with some companies even cancelling existing policies or leaving the state altogether. This has resulted in a decrease in the availability of insurance in certain high-risk regions, making it challenging for homeowners in these areas to find affordable coverage.
In response to this crisis, Colorado has introduced the Fair Access to Insurance Requirements (FAIR) plan, which acts as an "insurer of last resort". This plan aims to provide coverage for homeowners who are unable to secure insurance through the private market, particularly in high-risk areas. The FAIR plan is designed to be a temporary solution, ensuring that those in high-risk areas have access to insurance while also limiting the number of participants to prevent financial strain on the state.
While the FAIR plan offers a safety net, it is not a long-term fix. To address the underlying issue of high-risk areas, there is a growing emphasis on mitigation. Homeowners are encouraged to take steps to reduce the risks associated with wildfires and hail, such as removing flammable materials from their property and installing fire-resistant roofs. By implementing these measures, entire neighbourhoods can increase their safety and potentially lower their insurance premiums.
Additionally, there is a need to examine the broader trends contributing to the rise in natural disasters. Climate change, for example, is a significant factor in the increasing frequency and intensity of wildfires and extreme weather events. Addressing these root causes through policy changes and mitigation efforts can help reduce the risk of future disasters and, by extension, alleviate the strain on the insurance market in Colorado.
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Increased reinsurance rates
Colorado's homeowners' insurance rates have been increasing due to a combination of factors, including natural disasters, high costs of goods and services, and the reinsurance market. One of the primary factors contributing to this crisis is the increasing reinsurance rates.
Reinsurance is a type of insurance that insurance companies purchase to protect themselves from significant financial losses. Reinsurers are typically large, global companies that provide this service to spread the risk for the original insurer. In recent years, the reinsurance market has been facing challenges due to the increasing frequency and severity of climate disasters, such as wildfires and hail storms, which have led to substantial financial losses for insurers. As a result, reinsurers have been raising their rates at a record pace of up to 40%, according to Carole Walker, executive director of the Rocky Mountain Insurance Information Association.
The impact of climate change and the increasing frequency of disasters have made Colorado one of the least profitable states for insurance companies. With reinsurance rates skyrocketing, insurance companies are forced to pass on these increased costs to their customers in the form of higher premiums. This has resulted in a surge of insurance non-renewals and cancellations in Colorado, with some companies even choosing to exit the state.
In response to this crisis, Colorado lawmakers have introduced the Fair Access to Insurance Requirements (FAIR) plan, which will provide insurance coverage for homeowners who are unable to obtain policies in the private market. The FAIR plan aims to share the risk among multiple companies and prevent a single insurer from becoming the dominant provider in the state, as has happened in states like Florida. However, despite these efforts, insurance premiums in Colorado continue to rise, and the availability of coverage remains a concern for many homeowners.
The escalating reinsurance rates have contributed to the overall increase in homeowners' insurance costs in Colorado. With climate disasters becoming more frequent and severe, reinsurers are reevaluating their risk exposure and adjusting their rates accordingly. This, in turn, has led to higher premiums for insurance companies, which are then passed on to homeowners. As a result, Colorado residents are facing not only higher insurance costs but also the challenge of maintaining coverage in high-risk areas.
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Housing affordability
The impact of this insurance crisis on housing affordability is twofold. Firstly, it directly increases the cost of homeownership, as homeowners are faced with higher insurance premiums. This is especially challenging for those on fixed incomes, who may be forced to consider selling their homes and moving to more affordable areas. Secondly, it contributes to a strained housing market, as prospective homebuyers may be hesitant to purchase property in areas deemed too risky by insurers. This can result in a decrease in property values and further exacerbate the housing affordability crisis.
In response to this crisis, Colorado lawmakers have introduced the Fair Access to Insurance Requirements (FAIR) plan, which will provide a last-resort insurance option for homeowners who are unable to secure coverage elsewhere. The state is also encouraging homeowners to take mitigation measures to reduce the risk of wildfires, such as moving wood piles and installing fire-resistant roofs. However, some worry that relying too heavily on the FAIR plan could push out the private market, as has been seen in other states.
The insurance crisis in Colorado is just one factor contributing to housing affordability issues in the state. Other factors include a white-hot real estate market, high interest rates, and soaring property taxes. These factors, combined with the increasing cost of home insurance, are creating a challenging environment for both current and prospective homeowners in Colorado.
To address housing affordability, Colorado lawmakers and stakeholders must work together to find a resolution that eases the financial burden on homeowners. This may include exploring alternative insurance options, providing financial assistance, or implementing policies that promote affordable housing development. By taking a comprehensive approach that considers the various factors impacting housing affordability, Colorado can help ensure that residents have access to safe and affordable housing.
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Frequently asked questions
There are several factors contributing to the rise in homeowner's insurance in Colorado. Firstly, the state has experienced several climate disasters, including wildfires and hail storms, which have led to significant financial losses for insurance companies. Secondly, there is a reinsurance market or "insurance for insurers", which has seen increasing rates due to the high number of claims. Thirdly, inflation and the increasing costs of repairing and rebuilding homes, labour, litigation and reinsurance are also driving up insurance premiums. Lastly, insurance companies are writing fewer policies in Colorado due to disaster risks, reducing competition and making it harder for homeowners to find affordable coverage.
The increase in homeowner's insurance premiums in Colorado is attributed to a combination of factors, including:
- Extreme weather events and natural disasters: Wildfires, hail storms, and other extreme weather events have caused significant damage and increased the cost of insurance payouts.
- Rising costs of building materials and labour: The cost of repairing and rebuilding homes has increased due to higher prices for materials and labour shortages.
- Inflation: Higher inflation has led to an increase in the cost of goods and services, including insurance.
- Litigation: The rising number of insurance-related lawsuits has contributed to increasing premium costs.
According to various sources, Colorado is consistently ranked as one of the most expensive states for homeowner's insurance. It is the fourth, fifth, or sixth most expensive state, with premiums higher than California, New York, Arizona, Utah, New Mexico, and Wyoming. The average cost of homeowner's insurance in Colorado is over $4,000 for $300,000 in dwelling coverage, compared to the national average of between $2,300 and $2,600.
Here are a few strategies that may help mitigate the impact of rising homeowner's insurance premiums in Colorado:
- Shop around for insurance providers: Compare rates and policies from different insurance companies to find the most affordable coverage.
- Take preventative measures: Consider updating electrical systems, installing security systems, or getting water leak detection devices to reduce the risk of damage and lower your premiums.
- Increase your deductible: A higher deductible can help lower your insurance premiums.
- Bundle policies: Ask your insurer about discounts for bundling multiple policies, such as home and auto insurance.
- Explore alternative insurance options: If you're unable to find affordable coverage on the private market, look into the Fair Access to Insurance Requirements (FAIR) Plan, which is a last-resort insurance option for homeowners who can't secure coverage elsewhere.
