Colorado Homeowners Face Urgent Underinsurance Crisis After Fires

UPDATE: New research reveals an alarming trend: a staggering 74% of homeowners affected by Colorado’s devastating Marshall Fire are underinsured, leaving many unable to fully rebuild their homes. This urgent issue comes to light as communities struggle to recover from the fire that destroyed over 1,000 homes in suburban Boulder County.

The study, conducted by economists from the University of Colorado Boulder, highlights the critical gap in insurance coverage just as homeowners face skyrocketing rebuilding costs. Over the past five years, insurance premiums in Colorado have surged nearly 60% due to increasing losses from wildfires and other disasters, prompting a nationwide reassessment of insurance risks.

This research links contract-level data to actual rebuilding outcomes, analyzing 3,089 policies from 14 major insurers. The findings indicate that even households with incomes exceeding $180,000 often hold policies that insufficiently cover rebuilding costs. Shockingly, 36% of those affected by the fire had coverage that fell below 75% of what was needed to rebuild.

Construction costs typically rise after major fires, exacerbating the underinsurance crisis. Despite 87% of the policies studied including extended replacement cost coverage, nearly three-quarters still did not meet the full rebuilding costs. This discrepancy highlights a deeper issue of inadequate insurance from the outset.

The impact of underinsurance extends beyond financial loss; it significantly hinders rebuilding efforts. The study reveals that if all underinsured households had adequate coverage, 25.4% would have applied for reconstruction permits within a year, compared to only 18.8% who did. Additionally, only 5.4% would have sold their properties, versus 9.7% who did so due to inadequate insurance.

In light of these findings, experts urge Colorado homeowners to take immediate action to reassess their insurance coverage. Key recommendations include:

1. **Request detailed comparisons** of coverage limits when shopping for insurance, ensuring that all quotes reflect the same coverage amount to avoid underinsurance.
2. **Review insurance limits** regularly, especially after renovations or significant economic changes, as construction costs have drastically increased due to inflation.
3. **Consider the insurer’s reputation** and local presence, as companies with strong community ties are less likely to underinsure properties.

The Front Range will continue facing wildfire threats, and with insurance premiums unlikely to stabilize soon, homeowners must act as if a total loss could happen tomorrow. This urgency cannot be overstated, as families and communities strive to rebuild and recover.

The study underscores a critical need for homeowners to be proactive about their insurance coverage, emphasizing that underinsurance is not just a financial statistic but a real barrier to recovery and community stability.

For those in Colorado, the time to reassess insurance is NOW. Stay informed and ensure your coverage is adequate to weather future disasters.