Increasing Costs for Property Insurance

In 2023, Colorado ranked among the top 10 states with the highest insurance premiums. Property owners faced significant increases in their insurance policies, a result of the dual impact of natural disasters and escalating construction material costs. In our region, a substantial population resides in or near high-risk areas for wildfires, compounding the challenges. Furthermore, the state faced with a heightened frequency of hailstorms.

The total number of natural disasters in the United States in 2023 nearly equaled the total observed in the last decade. With 170 reports of hail measuring equal to or larger than 2 inches, there was a noteworthy surge compared to the 91 reported hailstorms in 2018.

Replacement costs saw an average increase of 45 percent between 2020 and 2023. Given that property insurance hinges on the cost of rebuilding from the ground up, insurers raised premiums to counter the elevated loss ratios stemming from current inflation. Nevertheless, it is anticipated that premium increases in property coverage will gradually subside over the next three years if inflation returns to a more normal level.

Contrary to the notion that insurance companies profit substantially from customer premiums, the reality in Colorado paints a different picture. In fact, the profit margin here is the third lowest in the nation, influenced by the prevalence of natural disasters and high inflation.

Addressing the escalating costs in insurance requires exploring two solutions. The first is the Fair Access to Insurance Requirements plan, which was passed by the legislature and then signed into law by the Governor on May 12, 2023, designed to provide coverage for policyholders unable to secure insurance in the regular market. The second solution encourages property owners to mitigate their properties through enhanced maintenance and safety measures. Insurance carriers are required to inspect dwellings and notify if the location doesn’t fit their guidelines anymore.

This situation underscores the imperative for property owners to stay abreast of the evolving insurance landscape and carefully assess their coverage needs amidst the heightened risks associated with natural disasters and inflationary pressures. If you wish to conduct a reconstruction cost analysis and compare your premium with other carriers, consider reaching out to a trusted insurance agent who understands the new reconstruction cost in your area. I am also available to prepare an updated insurance analysis for your investment properties and buildings.