After being signed into law in 2023, Colorado’s Fair Access to Insurance Requirements Plan goes into effect this spring.

The “insurer of last resort” will provide property insurance policies up to $750,000 for homeowners or up to $5 million in commercial property insurance who are unable to find coverage.

The plan was introduced as a bill by House Representatives Judy Amabile of Boulder, Dylan Roberts of Avon and House Speaker Julie McCluskie, who represents Chaffee, Grand, Park, Lake and Summit counties, as a response to rising costs of insurance and insurance loss due to risks posed by wildfire, calling on the state Department of Insurance to form a board of directors that will set requirements for eligibility. The board held a public comment period for its draft regulations in February.

According to the Rocky Mountain Insurance Association, the average homeowner’s insurance premiums have risen 57.9 percent between 2018 and 2023, due in part to inflation and the rising cost of construction and home repair as well as severe weather events like hailstorms and wildfires.

Colorado ranks second in the country for hail insurance claims and has experienced 48 billion-dollar disasters between 2010 and 2023, the RMIA reported, with two of the costliest fires in state history occurring in the past 4 years, destroying over 1,300 homes.

Fire risk is assessed by insurers when writing policies as a scale of protection classes, 1-10, based largely on the home’s distance from the nearest fire station and the availability of water

“(Protection class) 1 being like downtown Denver next to a fire station and 10 being like a cabin out in the woods,” said Tyler Scherffius, an insurance agent in Buena Vista with Mountain Insurance, who sees carriers in Colorado’s insurance market becoming more selective with what fire classes they will underwrite.

“We definitely see a lot of cornerstone carriers pull out of the market in Colorado and then a lot of other carriers phase out where they’re comfortable writing. Looking at Chaffee County, we’ve got fire protection classes from class 4 to class 10, with 10 being the most dangerous in the eyes of insurers. We’ve seen carriers who have previously written insurance policies for classes as high as 10 completely stop writing property coverage altogether in our area, like protection class 4 or 5. We’re starting to see a lot of carriers take a really hard look at that when they decide if they want to write policies or not,” Scherffius said. “You’ve got a handful of carriers that remain that are still pretty open to everything and that’s kind of causing a bottleneck with people who are losing their coverage or shopping for coverage. All of a sudden there’s this huge influx for this handful of carriers who are still willing to write for suitably higher-risk homes. That’s causing a problem right now.”

Scherffius hopes that the FAIR plan will ease some of that pressure as a “very last resort insurance product.”

“Basically, anybody who can’t get insurance from anywhere else, that’s where they’re going to have to go,” Scherffius said.

A fact sheet on the FAIR plan website, coloradofairplan.com, acknowledges that FAIR “offers limited coverage at a higher cost than standard insurance. It is meant to ensure that no property goes uninsured, but standard insurance is generally more cost-effective and comprehensive.”

Scherffius said that, if coverage can’t be found in the standard insurance market, homeowners can shop among surplus line insurers before turning to the state’s insurer of last resort.

Surplus line insurers are not admitted to the state’s insurance market, meaning they do not meet regulations set by the state Department of Insurance.

“Typically, these carriers are going to be more susceptible to taking on higher risks. The coverage is going to be a little more limited on what they offer. Premiums are going to be much higher, but they still are offering coverages where your typical Cornerstone insurance carrier may not write the coverage,” Scherffius said.