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Coloradans looking to buy homes or simply hold onto their property face a barrage of challenges: a white-hot real estate market, high interest rates and soaring property taxes. You can add surging home insurance rates to the pile of problems eroding the landscape of affordable housing options.

Colorado homeowners are reporting premium increases ranging from roughly 30% to more than 130% in just the past few years. People are getting the bad news that their policies won’t be renewed. Some insurance companies are deciding not to write new policies to cut their risks.

And condo owners are getting hit with special assessments and higher dues because premiums are skyrocketing for homeowners associations. The groups must often resort to non-standard carriers, which typically charge sky-high rates for lesser coverage.

“We truly have the hardest market that we’ve seen in a generation for property insurance,” said Carole Walker, executive director of the trade organization Rocky Mountain Insurance Information Association.

Colorado’s not alone. Inflation, higher home costs and the rising number and severity of natural disasters and wildfires are pushing up insurance costs. The average premium rate increase nationwide in 2023 was 11.3%, according to S&P Global Market Intelligence.

But Colorado’s recent increases stand out. The state was one of three with the biggest cumulative change in rates 2018-2023. Colorado logged a 57.9% jump, just behind Texas at 59.9%. Arizona saw a 52.9% increase.

A convergence of factors is driving the run-up in costs, Walker said. Higher inflation is one of those. “You have everything that insurance pays for going up in cost.”

Building materials are more expensive. Labor costs are up and labor shortages create delays and add to the expense. Walker said insurance-related lawsuits also help push up premiums.

An even larger force is the fallout from increasingly costly wildfires, hail storms and other disasters. Insurance companies doing business in Colorado reported the fourth-highest losses in the country for five years, according to data compiled for a 2023 report by the Colorado Division of Insurance. 

“I hate to say it, but we all likely need to adjust to higher premiums over the long term,” Walker said.

The effects of the mounting risks are being felt by a lesser known, but crucial link in the chain that connects to homeowners: the reinsurance market. Reinsurers are typically large, global companies that provide insurance to insurance companies to help spread the risk.

“The international impact of climate change, of increasing climate disasters, the severity of those disasters is causing reinsurers to consider their risk, reduce their exposure or increase their premiums,” said Vince Plymell, spokesman for the insurance division.

As a result, the effects of hurricanes and earthquakes in other parts of the country or world can eventually show up in a Colorado homeowner’s insurance bill, said Jason Lapham, the state’s deputy commissioner for property and casualty insurance.

Closer to home are the growing risks of wildfire and hail storms. Colorado is second in the nation for hail-damage claims and second only to California for the number of homes at risk from wildfires. Colorado hasn’t seen the kind of wide scale refusal of companies to write new policies that California has, but Lapham said there is a trend of some companies not re-upping policies in areas prone to wildfires or other disasters or taking “a pause” on new clients.

“It doesn’t mean they’re leaving the state entirely, but for those people who are affected, the effect is the same,” Lapham said.

State officials don’t have a lot of insight into the modeling used by companies to decide which areas are too risky to insure, Lapham said. “We’re focused on getting a better understanding and creating transparency, not just for us but also for policy holders.”

What’s worse than rising premiums?

There were plenty of insurance options for Bryan Watts and his wife when they bought a house in Guffey in Park County, west of Cripple Creek. The premium was about $2,000 in 2019 and rose gradually to $2,522 for the 2023-2024 policy year.

“Things changed dramatically in August 2023 when we received a notice of non-renewal at the policy maturity of June 2024,” Watts said. “I called them and was told it was simply due to wildfire risk.”

Watts tried to reason with the company, saying he had done a lot of work to reduce threats from wildfire. He offered to send pictures of his home or show an inspector around his property. But the insurer told him that it wasn’t going to cover homes in his zip code.

“I thought, ‘Well, no big deal. I’ll just move to another carrier,’” Watts said. “I had no idea how bad it had gotten just in the last year or two.”

A broker Watts worked with found only nonstandard insurers willing to cover his home. The insurers might take on customers that more traditional companies consider too risky, but the coverage comes at a high price. In Watts’ case, the quote was for nearly $35,000.

After making calls on his own, Watts found one of the big-name companies willing to write a policy for $4,800. A hang-up for companies that turned him down was that the nearest fire station is about 16 miles from his home. “They’re looking for substations that are 10 miles or closer,” Watts said.

Like a lot of people, Watts has a mortgage on his house, which means he needs to carry insurance. “There are going to be very few people who are able to live out here without a mortgage,” he said.

Escalating home insurance premiums and companies scaling back coverage are creating angst in the real estate industry. Brian Tanner, vice president of public policy for the Colorado Association of Realtors, said agents are seeing properties lose coverage or unable to find insurance.

“All of this together is incredibly problematic for a market that we already know is strained. We need more available units,” Tanner said. “If we have existing residences that cannot secure insurance, that is absolutely a market disruptor.”

Real estate agents are scrambling to help clients to find coverage, Tanner said. He is concerned about rising rates on people on fixed incomes.

The state is creating an insurer of last resort, officially called the Fair Access to Insurance Requirements, which will be paid for by assessments on the insurance industry. But it won’t be up and running until 2025 and applicants must have been turned down by at least three carriers.

Walker said the goal is to relieve pressure on the standard carriers by shifting some of the high risks, which the industry hopes will stabilize the market.

“Everybody I talk to is talking about the property insurance issue,” said Sarah Thorsteinson, CEO of the Altitude Realtors association, which includes Summit and Routt counties.

Real estate agents working in mountain communities started looking at the effect of wildfire risks on home insurance rates around 2012. That’s when the association started education and fire-mitigation programs for members and the public to head off possible mandates it worried could increase costs for buyers and sellers.

Thorsteinson represents property owners as a non-voting member of the Colorado Fire Commission. She said the association’s biggest concern with rising insurance premiums is housing affordability.

The ongoing struggle by homeowners associations, HOAs, to secure insurance has grown tougher, Thorsteinson said. She has heard of HOA dues doubling and tripling for condo owners in her area after insurance premiums shot up.

“We’ve seen increases of 100% or more for HOA policies,” said Lapham with the state insurance division.

Even before the recent rate increases, it was common for HOAs to have to seek providers in the non-standard market, also called the surplus lines market. “My guess is that it’s more common now than it has been simply because of the tightening of the market generally,” Lapham said.

Many of the more well-known insurers have gotten out of the condo business, Walker said, leaving the nonstandard carriers, whose policies are more expensive and have higher deductibles.

The more traditional insurers exited in part because of fears around construction-related lawsuits by HOAs. A 2017 law that requires a majority of homeowners to approve pursuing a lawsuit rather than just the HOA board has done little to coax insurers to write policies for condo buildings.

In some cases, HOA boards, trying to avoid raising dues, have put off infrastructure improvements and maintenance, making insurers nervous about the liabilities, Walker said.

The insurance division offers a toolkit for questions about home and HOA insurance.

The Hiland Hills Townhomes HOA was able to line up a new insurer in 2023, but had to budget for a 30% increase in premiums. Dues went up from $336 a month to $460 per unit.

“The coverage decreased overall. This year we’re budgeting for another 15% increase,” said Dmitry Gall, the HOA board president at the Denver complex.

The HOA was able to shuffle some items in the policy to hold down the increase. Gall said the association is cutting back in other areas to help pay the premium.

The HOA where Jon Christianson has a rental unit saw its insurance premium leap from the $167,000 budgeted last year to nearly $607,000. His fees doubled, “with a special assessment coming,” he said.

A letter from the HOA board that Christianson shared with The Denver Post said the previous insurance carrier got out of the Colorado market. Several companies declined to offer bids on a new policy because of the height and age of the three buildings in the complex and the fire suppression system.

Then the insurance for Christianson’s primary residence rose by 40%.

“I’ve never filed a claim. I’ve been with same insurance company for five years,” Christianson said. “This is becoming unsustainable.”

A marathon, not a sprint

The Marshall fire, which killed two people and destroyed 1,084 homes and businesses, receives a lot of the blame for Colorado’s escalating home insurance rates. The Dec. 30, 2021, wildfire raged through Louisville, Superior and parts of unincorporated Boulder County, leaving more than $2 billion in property damage in its wake.

Walker said although the Marshall fire was a devastating event, the reasons for rising rates are more complex. For instance, more people are moving into areas along the Front Range that frequently get battered by hail. Walker said Colorado’s most expensive hail storm hit in May 2017, wreaking $2.7 billion in damage in today’s dollars.

But for Alan McDaniel, who has an insurance agency in Castle Rock, the threat of wildfire is the primary obstacle when looking for ways to get a handle on rising insurance costs.

“I’m lucky enough that the carrier I mostly use, Farmers Insurance, isn’t not renewing policies, but others are,” McDaniel said.