As wildfires rage in southern California, causing unprecedented destruction to thousands of homes, homeowners in Colorado unable to obtain insurance might soon find some relief.
The Colorado FAIR Plan, which is an insurer of last resort, is set to begin accepting applications by the end of the first quarter this year, according to Kelly Campbell, executive director of the FAIR Plan.
Created in the 2023 Legislature, the FAIR Plan, which stands for Fair Access to Insurance Requirements, is a state-run insurer that provides coverage for those with no access to the standard market.
“For those folks who aren't able to get coverage through the standard market, through those insurance companies whose names you're familiar with, then they can come to the FAIR Plan to purchase basic property insurance,” Campbell said in a Thursday interview.
Being the first FAIR Plan to launch in the U.S. in 40 years, she said they’re ensuring everything is ready before opening applications, but she doesn’t anticipate any significant delays at this point.
To qualify, homeowners must be considered uninsurable due to factors such as wildfire risk, hail risk, claims history, age, or location. They must receive three declinations from licensed standard insurance companies before applying.
Campbell couldn’t say how many applications they expect to receive at launch, but as more Colorado homes encroach into the wildland-urban interface, the risks are sharply rising. This has been seen through skyrocketing home insurance premiums many Colorado homeowners are experiencing.
“Particularly in Colorado Springs—that's where we see that dual catastrophe that is so prevalent here in Colorado—we see the wildfire danger like we saw with Waldo Canyon. We see those multiple hail storms that we've seen the last couple of summers,” said Campbell. “That's one of the areas that we anticipate in Colorado we will see applicants to the FAIR Plan.”
Campbell stressed it’s not an insurance plan for those who don’t want to pay their increasing premiums, adding homeowners might end up with multiple insurance policies, where other insurers step in to fill the gaps in coverage.
“Our rates must be actuarially sound, so our rates must reflect the risk that they insure. As a result, we may not be the most affordable option,” Campbell said.
The FAIR Plan will cover individual homes up to $750,000 and commercial exposures are limited to $5 million.
Colorado hopes to avoid the insurance crisis bubbling in other states like California and Florida. In Florida, the insurer of last resort is the largest in the state as the private market has been driven out.
In California, lawmakers have suppressed the insurer's ability to charge accurate rates necessary to cover increasing claims from wildfire disasters as seen in Los Angeles this week.
It’s this same lawmaking approach that some in the insurance industry fear might occur in Colorado as Democratic Governor Jared Polis addressed the very issue in his Thursday State of the State address.
“I hear from Coloradans across our state. I'm sure you have too who either can't find coverage or who've seen very large increases, even priced out of the market for the coverage that they have,” Polis said. “Today, I'm calling for needed reforms to tackle the high cost of homeowners insurance and expand access so every homeowner can get the insurance they need.”
The insurance affordability issue in Colorado is a double-edged sword, experts argue. If premiums are artificially kept low, homeowners will save money, but insurance companies may pull out of the state or face bankruptcy. If insurance premiums rise to the level needed for catastrophic claims, many will find them unaffordable.
“Maybe your premiums have doubled, but what does that amount compare to having to pay out of pocket to replace your home? All of your belongings to live elsewhere if you were evacuated in a fire or other catastrophe?” said Carole Walker, executive director of the Rocky Mountain Insurance Association.
With drought conditions, climate change, and more homes being built in wildfire-prone areas, Walker said it’s a matter of when, not if, another environmental catastrophe will strike like the L.A. fires or the 2023 Marshall Fire in Boulder County or 2012 Waldo Canyon Fire near Colorado Springs.
She noted Colorado must continue mitigating wildfire risks with home hardening and defensible space practices, also adding this is the time to re-evaluate your insurance policies and ensure the coverage is what’s needed for a disaster.
“We really need to look at our FAIR Plan as a pressure valve release. So really that FAIR Plan is designed to put certainty back in the market. It's to take those high-risk properties off of the private market, prove that risk, get them back on,” said Walker. “We really want to use the FAIR Plan as a mechanism and lever to improve our marketplace, but not be the solution for people who truly don't need it, whose premiums are just going up.”
Email Senior Reporter Brett Forrest at brett.forrest@koaa.com. Follow @brettforrestTVon X and Brett Forrest News on Facebook.
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