As a result of wildfires and hailstorms, Colorado has found itself in the top 10 states in the nation for filing catastrophic insurance claims.
A catastrophe is defined as a natural disaster that produces more than $25 million in insured damage.
“We are seeing homeowners insurance premiums rising across the country and here in Colorado,” said Carole Walker, executive director of the Rocky Mountain Insurance Information Association (RMIIA).
“One wildfire doesn’t cause rates to spike; companies look at patterns over a period of time,” Walker added. “It varies from company to company,” with some considering the past 10 years and others using a shorter time window.
Before they increase their premiums, insurance companies are required to justify the price hike before the Colorado Division of Insurance. Requests for price increases, or notification of decreases, happen throughout the year, Walker said.
“Any increases we’re seeing this year are the result of the 2012 issues, fires and hail,” said Colorado Division of Insurance Communications Manager Vince Plymell. “The lag factor as a result of last year’s [Black Forest] fire won’t start impacting rates until next year.”
“They’ve already taken increases due to the hailstorms we had and the Waldo Canyon fire,” said Peggy Gonzales, agent with the Schaefer Agency, an independent insurance agency in Colorado Springs. Another rate increase is expected as a result of the Black Forest fire, Gonzales added.
Because the Schaefer Agency is independent, it offers coverage from a number of companies. All the companies the Schaefer Agency works with have increased their insurance rates, Gonzales said.
“We even tell our customers all have increased, some not as much as others,” Gonzales said.
She did not name the companies whose rates increased more than others.
“Counties where the fires and floods were are definitely seeing increases,” said Judy Kiesel, agent with the Scott McGregor Insurance Agency, also an independent agency. “It’s scary, really. All the companies have taken an across-the-board rate increase.
“They have had very little choice.”
Insurance companies have paid out a considerable amount of money in claims the past five years due to fires and hail in Teller and El Paso counties, she said.
“Some insurance companies are just not going to write in the area,” Kiesel said. She did not say which companies would not insure in certain areas.
“If you have a house in the trees, and you have trees very close to your house, there are many companies that won’t write for that,” Kiesel said.
Companies are beginning to look at individual risk as well.
“People are building larger, more expensive homes,” Walker said. “Insurance companies are getting stricter on what they’re willing to insure.”
“You need to get brush out of the area, trim limbs up to 12 feet, and if a tree has branches over the roof, trim those back,” Kiesel said. Also, homeowners are required to clear out pine needles to ameliorate the potential for damage.
Each insurance company has its own set of rules and guidelines, she added.
“It being enforced is new,” Kiesel added.
She told about one new client who had been with an insurance company for 30 years.
“They said they wouldn’t renew the policy because a tree was within 100 feet of their house,” Kiesel said. “The tree was not on his property, but the insurance company still requested it be cut down.”
The homeowner stopped her insurance with that company and chose an independent, Kiesel said.
“The companies I work with actually have an understanding of the areas we’re in. A lot of the companies are in the big cities and have no idea what we’re about,” she said.
The cost of insurance is determined on an individual basis, depending on a person’s risk, Walker said.
Risks include issues such as what materials the home is built from, its size, what hail or wildfire risks are in the area, if a person is high-risk and more.
“If you file multiple claims over a short period of time, say two to five claims over five years, where the average is one claim in eight years, you’re a high risk,” Walker said. “That does affect your rate and insurability.”
The wildfires in Colorado should not affect everyone’s insurance rates, she said.
“There’s a sense that wildfires are affecting everyone’s rates, and that’s not true,” Walker said. “By law, they can’t charge you if there’s a hurricane in Florida or a tornado in Oklahoma.
“They have to determine your rates based on the risks where you live.”
Insurance companies will look at the trends in an area. For example, if an area has experienced multiple hail claims, the insurance companies will build that risk into the policy.
According to figures compiled by the RMIIA, the Waldo Canyon fire of summer 2012 was the third-highest cost catastrophe in the Rocky Mountain region, which includes New Mexico and Wyoming. The damage reached $453.7 million.
That compares with the $292.8 million Black Forest fire, which was listed sixth-highest-cost catastrophe in the same region.
With the exception of a tornado in Denver in June 2009, hail comprised the remainder of the top 10 most costly catastrophes in the region, according to the RMIIA.
People may obtain flood insurance through the Federal Emergency Management Agency and its National Flood Insurance Program, subsidized through the federal government.
“Unfortunately we are seeing flood insurance rates go up — for different reasons,” Walker said. That increase is happening because the flood program is $24 billion in debt, she added.
“It’s a huge debate right now,” she said. “People are paying less for flood insurance than the risk dictates.”
During last year’s flooding in Colorado, most people did not carry flood insurance; only 22,000 people have flood insurance in Colorado, Walker said.
Everyone should consider getting flood insurance, she said, “but know what is covered. There is a separate policy for the structure to repair and rebuild and a separate policy for your personal contents.
“There’s limited coverage for basements because they’re more vulnerable.”
Insurance Reform Act of 2013
Last May, Gov. John Hickenlooper signed into law the Colorado Homeowners Insurance Reform Act of 2013, due in part to the insurance issues raised after the Waldo Canyon, High Park and Fourmile Canyon fires. Most provisions went into effect Jan. 1.
The law requires insurance policies to offer “extended replacement cost coverage” of at least 20 percent of the home limit and Law and Ordinance coverage that is at least 10 percent of the home policy’s limit if the home is insured to 100 percent or greater of the cost to rebuild.
The policies must include a minimum of 12 months and can offer up to 24 months of additional living costs.
The law also includes changes in the language of the policies. The language of all insurance policies will not exceed a 10th-grade reading level. That provision goes into effect Jan. 1, 2015.
In the event of a total loss of the contents, the insurer must offer the homeowner at least 30 percent of the value of the contents without requiring a written contents inventory. To receive the full replacement value, the policy-holder may also submit a written inventory. Insurers are then required to disclose their methodology for determining value to the homeowner. Insurance companies also must allow a homeowner at least a full year after a total loss to submit a contents inventory.
Insurers of personal items or property must also take three hours of continuing education in homeowners insurance coverage.