The tranquil beauty of Southwest Colorado has drawn many, including a new family, who recently purchased a home in Durango Hills. However, their dream turned into a nightmare as obtaining homeowners insurance became a daunting task.
The increasing threat of wildfires has prompted insurers to reassess their coverage, leaving residents in a bind. Despite finding a home they loved, the couple faced rejection from multiple insurers, including State Farm, Geico, Travelers, and even Allstate, which later canceled their policy due to wildfire-related concerns.
This issue is not unique to this family. Across Colorado and the nation, homeowners are grappling with rising insurance costs and difficulties in finding coverage. A 2023 report by consulting group Oliver Wyman for the Colorado Division of Insurance revealed a 51.7% increase in the average homeowner insurance premium in the state between January 2019 and October 2022.
The primary drivers behind this insurance crunch are natural disasters such as wildfires, floods, and severe storms. Insurers, facing substantial losses from these events, are pulling back from certain markets. Reinsurers, who provide insurance to insurance companies, are also tightening their risk tolerance in response to the escalating frequency and severity of climate change-driven disasters.
The situation in Durango exemplifies the broader trend, where insurers are reluctant to underwrite policies in wildfire-prone areas. Some insurers are choosing not to renew existing policies, leaving homeowners in a lurch.
The lack of transparency in how insurers assess risk adds another layer of complexity. Using third-party data and mapping, insurers assign risk scores to properties based on susceptibility to natural disasters. As the overall risk increases, so do reinsurance costs, contributing to the tightening insurance market.
Local insurance agents in Durango have witnessed a shift in the industry’s approach. Companies like Farmers Insurance are now imposing stricter limits on the fire risk score they are willing to insure, reducing the options available to homeowners.
State Farm, the largest insurer in the country, reported significant underwriting losses in 2022, leading to a pullback in certain locations. The impact of this shift is felt not only by homeowners but also by real estate professionals. Securing insurance, which was once a routine step before closing a deal, has become a significant hurdle, sometimes causing sales to fall through.
In response to this insurance crisis, the state of Colorado is exploring potential solutions. A new law, the Fair Access to Insurance Requirements (FAIR) Plan, aims to provide insurance for homeowners unable to find coverage elsewhere, with a cap of $750,000. Additionally, the state is working on a building and landscaping code for homes in wildfire-prone areas.
As the insurance landscape evolves, industry experts anticipate relief in the form of insurers accepting more risk in the future. However, the challenge remains significant, driven by the persistent threat of climate change and the increasing intensity of natural disasters.
For residents, securing homeowners insurance has become a protracted struggle. The family discussed in the first part of this blog had a rough experience of a three-month search insurance, including proof of substantial fire mitigation efforts, which highlights the urgency of finding viable solutions to ensure residents can protect their homes and livelihoods in the face of growing climate-related risks.
As a broker, we’re able to shop around with multiple insurance carriers, including surplus lines, for those homes no one else will insure.
