Addressing Colorado's Rising Insurance Costs: Key Legal Factors and Reform Proposals

Colorado is experiencing significant increases in home and auto insurance premiums, with rates rising faster than in any other state since 2020. Recent reports indicate that Colorado residents pay substantially more for vehicle insurance compared to neighboring states, prompting state authorities to propose measures aimed at curbing these costs. Governor Polis introduced a 'Roadmap' initiative targeting auto insurance rate reductions, though experts suggest these efforts address only surface-level issues. The core drivers of the escalating insurance costs lie in several longstanding legal frameworks established over the past four decades. One critical law allows third parties, not directly insured or harmed, to sue insurance companies to recover payments, which can lead to insurance companies paying for unauthorized work. This provision has expanded litigation, adding to insurer expenses. Another source of increased costs is a decades-old statute that mandates high interest rates—around 8 to 9 percent—on court judgments dating back to the injury date. This outdated rate creates a financial incentive for prolonged litigation, as claimants and their attorneys benefit from accruing interest while cases drag on, further increasing insurers' costs. Additionally, Colorado's interpretation of damages in insurance claims contributes to inflated payouts. The courts permit injured parties to present original, often significantly higher, bills as evidence of costs without allowing insurers to show actual amounts paid. This discrepancy leads to larger verdicts beyond true economic losses, thus driving premiums higher for policyholders. Experts argue that meaningful reform requires revising or repealing these legal provisions to reduce unnecessary insurance litigation and associated costs. While ongoing policy proposals aim to moderate premium increases, addressing these fundamental legal structures is seen as essential for long-term cost stabilization in Colorado's insurance market.