I was dropped, were you? 5 tips to navigate the impending crisis

I’m looking out the window at a smoke-filled valley as I write this article.  Major wildfires in Colorado and throughout the West will create a catastrophe for many property owners.  Are you ready for a shock on your property insurance?  What can you do if you premiums rise and/or you got dropped?  What is happening in Colorado’s property insurance industry?

What happened to the Colorado insurance market?

Recent wildfires in Colorado and throughout the West are leading to unprecedented losses in the property insurance industry.  Areas that once were considered “safe” from wildfires have undergone unprecedented losses.  Take for example Portland, Oregon.  Many of the recent wildfires were minutes from Downtown Portland that had never been considered “risky” areas for wildfires.  This summer has drastically changed the risk models for insurance companies as losses have piled up.  These losses will need to be recouped with a decrease in risk (drop policies in risky areas) and an increase in rates to compensate for future losses.  This is just the beginning as wildfires become more intense while at the same time building in these high-risk areas continues to increase.

What Happened to my property insurance?

I recently got a notice from my insurance company that my policy was getting canceled!  I have had the same insurance on the property for 15 years, pay in full at the beginning of the year and have never had a claim.  The insurance company didn’t care; I was out the door in 30 days even though I had done substantial fire mitigation.

I was in the process of selling the property that was dropped while at the same time I was buying another property in the mountains that was considerably less risky.  There was a fire hydrant in the front lawn, city water, and a fully staffed fire station less than a half a mile away.  The yard was primarily aspens and mowed grass that were on a sprinkler system.  Even with all this, according to the insurance company my home was in a “high fire risk area”; I asked for a map outlining the fire risk and saw that across the street and one door down were in low fire risk areas.  This was crazy, but the insurance company didn’t care about logic, they were going off their risk models and maps and my house was uninsurable.

What can you do if your insurance is dropped or you face a substantial increase?

Initially I was ticked off, but as I thought about it, I haven’t requoted my insurance in a while; was I really getting the best deal?  I knew I had to move quickly since my mortgage company was not excited about having an uninsured property and if I didn’t get a replacement policy the mortgage company would force place which would cost 4 or 5 times what I was paying. Here are 5 tips to help you navigate the process and actually get better coverage and save money.

1. See who the primary carriers are in your area. It likely will surprise you who the primary carrier is.  In my case, I found out state farm was the largest carrier which shocked me since I had seen state farm in my last neighborhood drop all their policies.  This is important since you will want to make sure you quote whomever has a large market presence.
2. Use a local agent. If your property is not in an area like downtown Denver, it is important to use someone with local expertise that understands your market and the carriers and their requirements. This is particularly important when you get into the mountain communities.
3. Make sure you are comparing apples to apples. Insurance is complex, make sure you are comparing like policies to like policies, for example coverage amount, deductible, covered items, etc….  The lowest price is not always the best choice (for example if coverage is less you could be grossly underinsured).  When you are quoting, you can typically get a discount if you bundle auto with your property insurance
4. Raise your deductible. Your homeowner’s insurance should be used for catastrophic events. Raising your deductible will save you substantial money
5. Shop every 2 or 3 years. I’d been with the same carrier on home and auto for 15 years since it was always such a pain to shop around.  This event forced me to shop and ultimately saved me money with better coverage. This is a good reminder that at least every 3 years you should take the time to shop around for coverage since carrier’s policies change, new entrants come into the market, etc…

Based on the steps above, I got quotes from 4 different carriers.  I ended up raising my deductible a little and saved almost 30% on my annual premium.  Ironically not only did I save money from my prior carrier that dropped me I also got substantially better coverage from a much better provider.

Summary

The insurance industry in Colorado and throughout the West is rapidly changing as losses pile up and wildfire risk increases.  Over the next year we will see considerably more carriers leave the market totally, drop policies, and raise premiums.  The transformation in the insurance industry is just getting started as companies digest the new wildfire paradigm highlighted by this year’s fire season.  Unfortunately, the only certainty with all this change is that you will be paying more for insurance in the future!

References:

• Mountain Homes find insurers reluctant to cover: Denver Post
• Homeowners insurance undergoing an overhaul in Colorado: Denver Post
• Colorado Department of Regulatory Agencies: insurance info from the state of CO

Written by Glen Weinberg, COO/ VP 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 the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide.  To get started on a loan all they need is their simple one page application (no upfront fees or other games).