The Los Angeles wildfires are raising questions about whether California's “insurer of last resort” has enough funds to cover the billions of dollars in damages. Meanwhile, Colorado is preparing to launch its own version of this insurance option for residents and businesses who are not able to find coverage elsewhere.
More than 30 states have Fair Access to Insurance Requirements (FAIR) plans, which are state-run programs backed by private insurers that offer coverage for high-risk properties. Colorado is set to be the first state in four decades to introduce a new FAIR plan, aiming to open to consumers by the end of the first quarter.
The Colorado legislature created the program in response to increasing disasters, like wildfires and hailstorms, which have made it harder for residents to secure or renew home insurance.
“We're making sure that Colorado consumers can still protect that largest asset, their home, even while we are seeing the climate and kind of the world around us change,” said Kelly Campbell, the executive director of the Colorado FAIR Plan. The state estimates nearly 30,000 people could be eligible for this last-resort insurance option.
Like other FAIR plans, Colorado’s program will be more expensive and offer more limited coverage than standard home insurance. It will cover up to $750,000 in depreciated value for homeowners and will not include liability for certain risks, such as frozen pipes, meaning consumers may need to purchase additional insurance.
To qualify, applicants will need to show they’ve been denied from three different insurers. Campbell said this requirement is designed to ensure the program remains a true last-resort option and avoids issues seen with California’s FAIR plan, where enrollment has surged in recent years.
Another factor distinguishing Colorado's plan from Californias is that its rate will include all costs and expenses that go into delivering the policy, such as the cost of reinsurance – insurance purchased by insurers – which should mean the premiums more accurately reflect the risks associated with the properties.
“That's a very important consumer protection to ensure that the FAIR plan is stable, it is actuarially sound, and that ultimately it can be a self-sustaining entity,” Campbell said.
She said because Colorado’s plan is being designed directly in response to natural disasters, the goal is for it to be financially resilient even in times of crisis. Currently, New Mexico is the only state in the Mountain West region with an insurer of last resort, but Nevada is also considering implementing one.
This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Nevada Public Radio, Boise State Public Radio in Idaho, KUNR in Nevada, KUNC in Colorado and KANW in New Mexico, with support from affiliate stations across the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting.
