Colorado’s reputation as a haven from natural disasters isn’t what it used to be.
The state now ranks among the top 10 for the highest share of homeowners insurance claims paid out due to catastrophes, alongside more traditional disaster magnets like Texas and Louisiana. That trend is translating into upward pressure on premiums and more stress on insurer finances, industry experts said.
Average annual premiums paid by Colorado homeowners already are above the national average and rose to $893 in 2009 from $826 in 2007, according to the Insurance Information Institute. Since then, severe storms and wildfires have prompted major insurers in the state to raise rates.
“Homeowners insurance is still affordable, but there is a worry about people being priced out,” said Carole Walker, executive director at Rocky Mountain Insurance Information Association.
From 1997 to 2006, catastrophes triggered only 26 percent of the claims made on homeowners policies in the state, according to an analysis from the Insurance Research Council.
But from 2007 to 2011, 41 percent of the claims paid out against homeowners policies in the state were due to large-scale events, the ninth highest share of any state.
The insurance industry relies on Property Claim Services to designate catastrophes, which are large-scale events that trigger a high number of claims — think earthquakes, major winter storms, hurricanes, wildfires, riots, etc.
What bedevils insurers is that catastrophes are hard to predict and set aside reserves for, said Kelly Campbell, vice president for state government relations with the Property Casualty Insurers Association of America.
Premiums collected can fall short of the money needed to pay claims when catastrophes surge. Adjusters need to be brought in from outside and rebuilding costs can skyrocket, she said.
In 2006, Colorado insurers paid out 69.2 cents in claims for every dollar they collected in homeowner insurance premiums. But in 2010, the most recent year available, they had paid out $1.37 in claims for every $1 premium collected, according to the PCIAA.
Normally, good and bad years balance each other out, but the nation as a whole has suffered a long-running surge in catastrophes since the middle of the last decade, said David Corum, a vice president with the Insurance Research Council.
In 2001, the amount of claims paid out in the state, averaged across every insured house, was $261.36, with only $59.92 of that going to cover catastrophe-related claims.
In 2011, the average claim per insured home was $638.33, with $248.93 paid out on catastrophe claims. Those numbers were worse in 2010 and 2009, when catastrophes represented 50 percent and 64 percent of claims.
It is worth noting that the frequency of claims paid has dropped by 39.2 percent from 1997 to 2011 in Colorado, while the severity of the claims, or the amount paid out per claim, has risen 261 percent.
Property Claims Services estimates that catastrophes caused $1.6 billion in damages in Colorado from 1990 to 1999. In 2010 and 2011 alone they triggered $1.1 billion.
“Homes are more complex and expensive to repair,” Corum said, adding that they are larger in size and more are being build in remote areas.
Non-catastrophic claims that cover items like theft, broken pipes, dog bites and isolated weather damage are also on the rise, but at a slow and steady enough pace that insurers can adjust.
Corum said his study doesn’t break out what share of non-catastrophic claims are due to more unsettled weather patterns, like freak wind gusts that blow trees over and strip shingles off roofs.
And it is too early to include 2012, the worst summer on record for property-destroying wildfires in Colorado, which prompted debate over reforms in the state’s insurance industry.
That said, hailstorms are a much bigger problem in Colorado than wildfires, with a July 2009 storm generating $768 million in claims, Walker said.
If Colorado now wears a “kick me” sign when it comes to the elements, where can homeowners looking for safety turn?
States with minimal catastrophe-based claims include places like Nevada, Oregon, Washington, Hawaii and Alaska, according to the Insurance Research Council.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or twitter.com/aldosvaldi
