Homeowners “Blindsided” as Insurers Cancel Policies in Idaho & Colorado
It’s getting harder for homeowners in certain western states to buy insurance.
According to a new report, homeowners in Colorado were “blindsided” after insurance companies pulled coverage “without warning,” making it increasingly difficult to afford living in the state.
The news comes just days after homeowners in Idaho received similar cancellation notices from insurers. Multiple insurers canceled policies across the state because of rising wildfire risk.
According to the Insurance Information Institute, meanwhile, California’s insurance market is at a “critical juncture” because of rising wildfire risk. Last year, insurers canceled tens of thousands of policies statewide – just months before southern California experienced the costliest wildfire in US history.
What’s happening in Colorado, Idaho, and California? How can homeowners access the coverage they need? Let’s break it all down.
Why Insurers Are Cancelling Policies
This past week, insurers in Idaho and Colorado made headlines for canceling policies across each state.
Insurers cite rising wildfire risk as the reason for the cancellation.
It’s part of a common theme across the country. In recent years, natural disasters – from wildfires to hurricanes to thunderstorms – have become more severe.
At the same time, insurers are facing rising repair and replacement costs due to inflation, supply chain issues, and other challenges.
All of these factors combine to create higher risk for insurers. Insurers have a greater chance of making a large payout to policyholders.
To accommodate this risk, insurers can raise premiums. Or, if risk is too high, they may simply cancel a policy.
How Insurers Assess Wildfire Risk
According to KTVB 7 in Idaho, insurers rank properties across the state based on environmental factors like dryness and wildfire risk.
Insurers categorize different areas as having low, moderate, or high risk.
To assess individual properties, however, insurers may look at home-specific factors. A home surrounded by green, moist land, for example, may be able to buy homeowners insurance at a reasonable price. A home surrounded by dry, dense forest, on the other hand, may not be able to purchase insurance.
Home value can also impact risk. Insurers in Boulder, for example, recently canceled policies on homes worth more than $1 million. These high-value homes fell outside the purview of normal insurance policies, forcing homeowners to look elsewhere.
How Insurers Respond to Higher Risk
Some insurers cancel policies when risk is too great. Others take a different approach – say, by raising premiums or excluding wildfire damage.
Some of the steps insurers in Idaho, Colorado, California, and other western states are taking include:
- Raise Premiums: Homeowners in western states are facing higher premiums. One homeowner in California, for example, was dropped by Nationwide because of a high-value property in a high-risk zone. She was able to purchase insurance through State Farm – but her premiums rose from $4,510 to $11,947.
- Exclude Wildfire Damage: Some insurers are providing homeowners insurance policies to homes in high-risk areas – but these policies exclude wildfire damage. Just like insurers in the Southeast exclude hurricane and windstorm damage, insurers in the West could start excluding wildfire damage without a special endorsement.
- Analyze Home-Specific Risk Factors: One homeowner in Idaho, according to the KTVB 7 report, was able to overturn a denied insurance policy after proving he lived right behind a fire station. That house is normally in a high-risk area for wildfires, but its location right behind a fire station lowered its risk significantly. Farmers sent an employee to evaluate the property and approved that specific policy. Insurers could also assess homes based on fire barriers and other preventative measures.
- Cancel Policies: Eventually, if a property’s risk is too high to justify the cost of doing business, the insurer may simply cancel the policy or avoid renewing it. State Farm, for example, made a prudent business decision when it failed to renew 72,000 policies in California because of higher risk. The decision was made in mid-2024, just months before California experienced the country’s costliest wildfire to date.
Homeowners Have the Right to Purchase Property Insurance, Per State Law
Did an insurer cancel your policy? You have options. In most states, homeowners have the right to purchase property insurance through Fair Access to Insurance Requirements (FAIR) legislation.
Idaho, for example, has the FAIR Plan Act, which ensures every homeowner has the right to purchase property insurance. Under the FAIR Plan Act, homeowners who have been turned away by the ordinary marketplace can still purchase coverage.
Idaho’s FAIR Plan Act essentially requires insurers to do business with certain policyholders. Insurers join a statewide insurance pool based on their market share in that state. You sign up for insurance through the Fair Plan and an insurer is randomly assigned to you.
Here’s how FAIR plans work in Idaho and other states:
- You try to buy insurance through the ordinary insurance marketplace.
- One or more insurers turn you away.
- You work with an insurance broker affiliated with your state’s FAIR plan or equivalent system.
- The broker adds you to a high-risk insurance pool, and an insurer in your state is assigned to provide homeowners insurance to you.
This insurance tends to be more expensive. However, it’s a last resort option for homeowners living in vulnerable areas.
Colorado and California have already launched similar programs. In 2023, Colorado lawmakers authorized the creation of the Fair Access to Insurance Requirements (FAIR) Plan. California has its own FAIR Plan founded with similar goals.
An insurance agent can help determine if you qualify for coverage under your state’s FAIR plan or equivalent legislation.
For many homeowners in Colorado, Idaho, and California, the insurer of last resort is quickly becoming the only available option.
