Colorado's Homeowners Insurance Mitigation Fee Proposal

Colorado legislators are making another attempt to pass legislation that imposes a fee on homeowners insurance providers to fund hail mitigation efforts. This follows a previously unsuccessful attempt at similar legislation. On April 7, Colorado Democrats introduced a revised proposal for a 0.5% fee on homeowners insurance policies, to be paid by insurers. This fee is projected to collect up to $20 million annually, supporting homeowners in installing hail-resistant roofing materials. The aim is to lower premiums and reduce associated risks.

This initiative is led by Senator Kyle Mullica, House Speaker Julie McCluskie, and Representative Kyle Brown. Senator Mullica emphasized the financial burden of insurance, stating that the bill is a step toward making meaningful changes. Currently, the average cost of a standard insurance policy for a $300,000 home in Colorado is $3,412 annually, notably higher than the national average of $2,424, according to the Insurance Fairness Project.

Last year, a bill aimed at addressing both hail and wildfire risks through a 1% insurance plan fee was presented by Democrats but failed in a Senate committee. This bill intended to fund grants for hail mitigation and establish a reinsurance program for wildfire-related losses. Some legislators, including Senator Mullica, opposed last year's strategy, feeling the fee contradicted cost-reduction goals. This year’s proposal ensures insurers cannot transfer the fee as a surcharge to customers.

The Rocky Mountain Insurance Association has shown initial support for the new legislation, actively participating in discussions. Carole Walker, the executive director, expressed a shared objective of reducing hail risk and its financial impacts on homeowners and insurers alike.

Unlike last year’s legislation, the current proposal does not allocate funds for a wildfire reinsurance program but plans to commission a study exploring the idea. The focus remains on hail, identified as the primary driver of high homeowner insurance costs in Colorado. A Colorado Division of Insurance study released in February indicates that hail claims contribute 26% to 54% to premium costs, whereas wildfire risk accounts for 0.9% to 24.6%.

The study also assessed potential savings for homeowners who undertake mitigation. Hail mitigation could yield annual savings from $82 to $387, compared to wildfire mitigation, which offers savings from $3 to $25 per year. Speaker McCluskie highlighted the significant economic impact of hail events, even when these storms occur in varied regions across the state.

Overall, the latest bill is part of ongoing legislative efforts to reduce insurance expenses and maintain homeowner coverage. Recent legislative actions mandate insurer transparency regarding wildfire risk evaluations and offer rate discounts for mitigation efforts. Additionally, the 2023 FAIR Plan provides insurance as a last resort for homeowners unable to secure coverage in the private market, covering properties valued up to $750,000.