Colorado Insurance Premiums High Due to State Laws and Litigation Risks

Colorado drivers and homeowners are facing higher insurance premiums than many other states, with auto insurance costs averaging $3,233 annually, significantly above neighboring states. The increase in Colorado's insurance premiums is linked to rising vehicle and home repair costs, driven by more expensive cars and homes, as well as frequent severe summer weather and wildfire risks. Governor Jared Polis has introduced a "Roadmap to Reduce Auto Insurance Premiums," focusing on safety improvements, stricter penalties for auto theft, uninsured motorist enforcement, and timely hailstorm alerts. However, this plan does not address certain state laws that contribute to increased insurance costs by fostering prolonged litigation. Key legislative factors impacting insurance costs include the 2008 House Bill 1407, which mandates insurers to promptly pay "first-party claimants," interpreted broadly to include vendors, and imposes double penalties for unreasonable payment delays without clearly defining time limits. Insurers often opt to overpay claims quickly to avoid costly litigation. Another contributor is Colorado's high interest rates on claims, set at 8-9% annually from the injury or damage date until settlement, much higher than other states that tie interest to the federal prime rate. This encourages extended claim resolutions to accumulate substantial interest, increasing insurer payouts. Lastly, Colorado's allowance of "phantom damages" in personal injury lawsuits—awarding juries figures based on original medical bills rather than actual payments—results in inflated verdicts. These laws together incentivize litigation, raising insurance premiums. Reforming these legislative elements could reduce insurance costs, but any changes face opposition from legal advocates benefiting from the current system. Until then, Colorado's residents will continue to experience higher insurance expenses.