After the Marshall fire, the state of Colorado embarked on a process to eliminate private property insurance. The first step the legislature took was to implement a study of why clean up from wildfires was inadequate and why insurance companies should be on the hook for more claims. At the same time the public insurance plan was implemented (Fair Plan). What does this mean for the property insurance industry in Colorado? Why will your rates surge more and taxpayers now on the hook for billion dollar payouts?
Why was the study on Colorado Property insurance commissioned?
After the Marshall Wildfire there was an uproar by homeowners that remediation was not done properly.
Inconsistent claims for testing the toxins were filed and cleaning processes were often inefficient, not just in Colorado, but in California and Hawaii, too, after wildfires tore through neighborhoods where the boundaries between natural landscapes and human development blur.
The lack of standards also brought a “battle of experts” between insurance carriers and policyholders, according to authors of a study published last month by an environmental consulting group.
The study, commissioned by Colorado’s Division of Insurance, aims to streamline the process for homeowners, insurers and regulators. The division was required to hire a third party to conduct the study under House Bill 1315, which was approved in 2024.
On the surface the study sounds noble
Although the intent of the study was noble, the conclusions were not surprising and will bring huge changes to insurance in Colorado. In essence, the study found that there were huge flaws in how properties are cleaned up from wildfire damage. For example, if a property was cleaned up, but yet surrounding properties were still not cleaned up, then the current property would be re-impacted based on the surrounding properties. In essence based on this theory, the property even if it didn’t burn would be deemed inhabitable and a total loss that would be covered by the insurance company.
Here are three big conclusions from the study:
- Testing and reporting costs would increase between 9-12k
- Approximately 28.25% of fire claims would have been considered repairable now would be considered total losses
- The total percentage of house fires anticipated to result in full home replacement as the default handling under the proposed economic analysis method would be 34.99%
The implemented guidelines will bankrupt the Colorado insurance industry
The new guidelines from this study will increase costs exponentially for insurance companies as now 29% of the houses were repairable are now total losses. Furthermore the litigation that this study opens up is beyond comprehension and next to impossible for insurance companies to factor into their pricing. Long and short, once this study is implemented insurance companies will flee the state or put in exclusions that fire losses are not covered (similar to how flood is not covered by most insurance).
On top of the number of companies leaving, any remaining companies will have such huge liabilities that rates will need to double or even triple to compensate for the prospective losses.
Colorado following in the footsteps of California:
Just like California, Colorado is now getting into the insurance market. HB23-1288: State Sponsored property insurance plan which is now law. This is a bill looking for a solution. State-run or state-created insurers of last resort started cropping up in the 1960s in coastal and urban areas where property owners faced high risks — from fires and hurricanes — and couldn’t get traditional coverage from private insurance companies, said Mark Friedlander, a spokesman for the Insurance Information Institute, another insurance industry trade group.
Theoretically, the new state run policy would insure property owners in extremely high risk areas that are not able to obtain fire insurance. As a lender in Colorado for over 20 years I have not seen a single instance where insurance was not attainable at a price. The reason that the issue of not being able to get insurance is even coming up is that insurance providers are drastically raising rates in high risk areas due to huge losses in the last several years from wildfires.
The new wildfire remediation guidelines will force the overwhelming majority of homeowners into the state run plan just like what has occurred in California.
What is in the Colorado Property insurance plan:
The law creates an unincorporated public entity, the fair access to insurance requirements plan association (association), to help persons who are unable to find coverage in the voluntary market obtain provide property insurance coverage for their real property when such coverage is not available from admitted companies.
The association must:
- Establish, offer, and maintain a property insurance and a commercial property insurance policy that satisfies the requirements specified in the bill;
- Establish a reinsurance association; and
- Assess and share among member insurers all expenses, income, and losses based on each member insurer’s written premium in the state.
The association is managed by a board of directors consisting of 9 members appointed by the governor. The board is required to administer the fair access to insurance requirements plan (FAIR plan).
The FAIR plan must include rates that:
- Are not excessive, inadequate, or unfairly discriminatory;
- Are actuarially sound so that revenue generated from premiums is adequate to pay for expected losses, expenses, and taxes and the cost of reinsurance; and
- Reflect the investment income of the FAIR plan; and
- Reflect the cost of reinsurance or to other capital risk transfer markets.
What is happening in California’s insurance marketplace:
State Farm General Insurance Co. said it’s no longer accepting new applications for property and casualty coverage in California last week, a year after Allstate Corp. also paused new policies, worsening what FAIR Plan, a state-mandated insurance pool, called a “looming insurance unavailability crisis.”
“We have a lot of people going naked, which means they have no insurance,” said Bill Dodd, a Democrat state senator representing fire-scarred Napa County and other parts of Northern California. “What my constituents want is insurance.”
The FAIR Plan, which offers minimal coverage and high rates is meant to be a provider of last resort, but enrollments have surged 70% since 2019 to 272,846 homes in 2022.
Colorado will have a similar outcome to California with property insurance rates/cancellations
Over the next 3-5 years, you will see major insurance companies no longer willing to write policies in higher risk areas. We are already seeing the beginning of this with many insurance companies no longer willing to write policies in the foothills and many mountain communities. California is a cautionary tale that was not heeded in Colorado.
The real reason for many carriers dropping coverage in Colorado is cost vs expense. Rates must be considerably higher in higher risk areas to compensate for the risk of loss. In California State Farm requested a 28% increase in rates to compensate for the higher risk and expenses for writing policies in higher risk areas. California prohibited the increase and State Farm pulled out of the market.
Colorado will eliminate the private property insurance market
Unfortunately, most of Colorado is now in a fire zone including suburbs throughout the front range that were previously considered safe. As we saw in the Marshall fire, losses from fires in metro areas that were not thought to be high risk are now at extreme risk. This unto itself has pushed the Colorado property insurance towards a cliff.
The legislature has now taken the final step to basically push private property insurance off the cliff to force everyone into a state sponsored plan. The new recommendations on fire remediation will increase the costs for insurance companies exponentially with 28% of houses that were deemed repairable now total losses. Furthermore the litigation coming out of these new guidelines will be incomprehensible.
The loss of private property insurance companies will substantially increase costs for property owners as we have seen in both CA and FL and at some point these losses could bankrupt the state run insurance plan that taxpayers will be on the hook for just like California.
The new wildfire guidelines are not law yet, but based on the track record of the legislature it is just a matter of time. When you wonder why your insurance gets dropped and/or your rates triple, look to your elected Colorado officials as the culprit.
Additional Reading/Resources
- https://coloradosun.com/2025/12/08/colorado-smoke-remediation-study/
- https://newspack-coloradosun.s3.amazonaws.com/wp-content/uploads/2025/12/Draft-Report.pdf
- https://coloradohardmoney.com/category/colorado-property-insurance/
- https://coloradohardmoney.com/colorado-insurance-crisis/
- https://coloradohardmoney.com/why-are-insurance-costs-increasing-in-colorado/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. He is the owner of Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Glen resides in Colorado, lends in Colorado, owns property in Colorado, and services loans in Colorado which provides a unique real estate prospective of what is actually happening on the ground both in Denver and throughout Colorado. My goal of this real estate blog is to provide an honest assessment of what I see happening in Colorado real estate and how it will impact real estate owners, buyers, realtors, mortgage professionals, etc…
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