Affordability, availability of home insurance under threat in Colorado
From January 2019-October 2022, Colorado home insurance premiums have increased 51.7%, on average, or 11.5% annually.
Home insurance premiums have been accelerating in Colorado due to the confluence of growing wildfire risks, inflation and a hardening reinsurance market, according to a report from the Colorado Department of Regulatory Agencies (DORA), which found the affordability and availability of home insurance could become challenged.
According to the report, home insurance carriers have had a tough stretch of years in Colorado, which has the fourth largest five-year direct loss ratio of all U.S. jurisdictions. The unfavorable loss ratios have been pushed on by significant wildfire activity, such as seen during the Marshall Fire. DORA explained that some of the state’s most at-risk areas of wildfires are near densely populated areas, making large losses more likely.
While risks have been growing and profits plummeting, premiums have increased significantly, DORA reported. From January 2019-October 2022, the average home insurance premium has increased 51.7%, or 11.5% annually.
Given the accelerated pace at which rates have grown in recent years, the report concluded the situation has likely extended beyond the period studied (ending October 2022) and that insurers are likely to institute further rate increases in the future.
Carriers circle their wagons, market consolidates
The DORA report also found that outside of the top five insurance companies, carriers have been reducing their exposure in the Colorado market. Through October 2022, 76% of carrier groups shrank their exposure in the state, and 32% of that group did so by more than 10%.
As a result, the state’s market is now becoming more consolidated among the top five carriers, who have picked up a portion of the policies left by companies, according to the report. Through the same period, industry growth in the state has fallen significantly, leveling off to almost 0% in October 2022.
“The fact that most carriers have been shrinking their exposures in the state in 2022 — some very materially — suggests some turmoil for policyholders and instability in the market,” according to the report.
The study was mandated by a state law passed during 2022, which required DORA to prepare a report on the stability of the home insurance market.
Related: