Colorado Considers New Fee-Based Model for Wildfire Insurance Funding

Colorado is reevaluating its financial approach to wildfire insurance, potentially impacting homeowners with new costs. Lawmakers are discussing a revised legislative proposal that introduces a fee-based model, moving away from previously considered methods. According to recent updates on House Bill 1302, the legislation suggests a 0.5% fee on all homeowners insurance policies within the admitted market, aimed at financing a proposed state wildfire reinsurance enterprise. The revision dismisses earlier plans that included stringent loss ratio requirements for home insurers.

Under the restructured bill, fees collected would support the creation of a state-run business entity responsible for implementing a grant program to mitigate wildfire exposure. Home insurers across Colorado, including those participating in the new Fair Plan, would contribute 1.5% of their direct written premium to support this cause. This fee-based model replaces an earlier strategy reliant on revenue and catastrophe bonds, which had initially been part of the bill’s structure before amendments were made in committee discussions on April 7.

The revised bill also omits the clause that would have enforced penalties on home insurers unable to sustain a loss ratio above 75% over three years. Under this provision, insurers not adhering to the requirement would have been mandated to submit rates at least 5% lower than the previous year. Industry experts questioned the applicability of health insurance metrics in the property insurance landscape, considering the unpredictable nature of weather-related damages.

Alongside HB 1302, legislators are contemplating House Bill 1182, which introduces enhanced disclosure obligations for insurers utilizing wildfire risk assessments in their underwriting processes. If enacted, HB 1182 will require insurers to disclose detailed information regarding their use of catastrophe models, risk scores, and other analytical tools used in determining coverage and premiums. This push for transparency has received attention from the Rocky Mountain Insurance Information Association, whose executive director, Carole Walker, emphasized the ongoing dialogue between industry representatives and state officials, including Colorado Insurance Commissioner Michael Conway. While the amendments have made strides, continuous discussions aim to fine-tune the proposal for the benefit of all stakeholders.