Insurance industry groups say they are working to ensure Colorado’s new FAIR plan will avoid the pitfalls of other states and truly provide last-resort policies for consumers who cannot find coverage on the private market.
Legislation establishing Colorado’s new Fair Access to Insurance Requirements plan association became law last month. Once implemented, the plan will charge “actuarially sound rates,” and have coverage limits of $750,000 for homeowners and $5 million for commercial property owners. Insurers writing in Colorado will be members of the association and can be assessed for start-up revenue and in the event of financial shortfalls.
Like 30-plus other state FAIR plans, Colorado’s will offer insurance coverage to personal and commercial property owners if they are unable to find a plan on the private market, according to supporters.
“Colorado faces some of the largest increases in homes and businesses threatened by wildfire of any state in the nation, with more than 1 million properties, two-fifths of those in the state, already facing some risk,” state Rep. and Speaker of the House Julie McCluskie, who was a primary sponsor on the FAIR plan bill, said at a House committee meeting in April.
McCluskie said she and fellow lawmakers “worked very closely with industry partners to ensure that the FAIR plan is designed to step in only when individuals and businesses are unable to find any other coverage.” According to the bill’s text, customers will be required to show three declinations of insurance coverage and take steps to mitigate the wildfire risk of their properties to qualify for a policy.
“The biggest thing we wanted to make sure of … is that a FAIR plan doesn’t compete with the private insurance market, and it doesn’t become the insurer of choice,” Carole Walker, executive director of the Rocky Mountain Insurance Information Association (RMIIA), told Advisen. She added the new program must “remain the insurer of last resort.”
She added, “It’s truly for people who can’t find either residential or commercial insurance in the private market, and then the goal is to get them out of it.”
Janet Ruiz, director of strategic communications with the Insurance Information Institute (III), said FAIR plans help ensure everyone in a state can provide property coverage, especially those living in areas with very high wildfire risk. The bill’s supporters noted, for instance, that real estate transactions cannot take place without property insurance.
“It is important to have insurance available for everyone in the state. … You may not have as broad of coverage, but at least you can buy insurers in these very high-risk areas,” Ruiz told Advisen.
Walker said that most Coloradans can still obtain property coverage from private insurers, although they’re likely paying higher premiums than in years past and might have to try multiple insurers to land a policy.
“There is some pressure especially for capacity related to reinsurance with especially high net-worth homes, but at the same time we want to be able to maintain our marketplace,” she said. “Unfortunately, the trends we’re seeing are more expensive premiums because you’re looking at more expensive claims costs. Not only is there a bigger escalation in the number of claims, but also the cost to pay those claims.”
Rate and capacity issues are in part due to catastrophes such as hail and wildfire — Walker noted Colorado ranks second in the nation for hail insurance claims and third in number of homes located in high-risk fire areas. Another culprit is the litigious environment in the Centennial State. Walker said that state statutes “make it too easy to sue for bad faith.” Industry groups have so far unsuccessfully pushed for tort reform, which according to Walker would alleviate the affordability and availability issues seen in both auto and homeowners lines of business.