There is much talk these days of the ways that homeownership is not as affordable as it once was. One large increase in cost has to do with homeowners insurance. We frequently work with and refer clients to Steve Hakes with Rocky Mountain Insurance Center, an insurance broker in Lafayette.
He reached out recently to give us an update on the state of the homeowners insurance market. Read on below to learn more about why homeowners insurance costs have gone up across the board and what we can expect moving forward here in Colorado.
Rates Have Gone Up...
And continue to do so in some cases. Here is some context around why rates have increased so dramatically- Steve told me that from 1980-2022, there were 8 storms that were considered "catastrophic." In 2023, there were 28 catastrophic storms and a total of $93 billion paid out by insurance companies. For years, insurance companies were offering lower premiums because they could. 2023 changed all of that as insurance companies now must reckon with the fact there are more catastrophic storms than before.
Home insurance rates are now simply higher than they used to be. Steve said before 2023, they could find rates of under $2,000/year for most homes. Now they’re seeing rates closer to $3,500K - $5K per year for home insurance, and possibly higher depending upon age, roof age, size and location.
Deductibles Have Also Increased
The days of $1,000 deductibles are essentially gone. Most companies have now moved to a percentage deductible, usually a 1% or 2% of the dwelling coverage. So if the dwelling coverage is $875,000, and a client has roof damage due to hail, that homeowner will pay $8,750 before the insurance company will take any action. Or if it’s a 2% deductible, then it’ll be $17,500. Ouch! That’s where the industry is heading to try to keep claim payouts lower to keep insurance companies solvent.
Typically, each year the dwelling coverage automatically increases to try to keep pace with the increased labor and materials cost. As the dwelling coverage increases, so does the percentage deductible. In our example, a home at $875,000 this year may have a 5% "inflation guard" attached, which will cause the dwelling coverage to increase to $875,000 + 5% = $918,750, which means their 1% deductible that year has increased to $9,187. Many people don’t realize how those percentage deductibles change. Steve said he does have a couple companies he works with that still offer fixed deductibles.
Availability of New Policies is Limited
The number of insurance companies writing home insurance policies decreased in 2023 and 2024 and now some are coming back into our market. Many companies pulled out of the mountains, and for those that still write mountain homes, they’ve very restrictive. Some companies will write the home but will exclude fire as a cause of loss. Others may write the home insurance but have stringent fire mitigation standards that are nearly impossible to meet. It's a difficult time to purchase a mountain home due to insurance issues.
Insurance down here, outside of the mountains, has become more challenging too. Some insurance companies have limited how many home policies they’ll write, others require auto-home bundles, others have limited dwelling coverage, and others won’t write near any kind of open space. Things are changing all the time.
Steve encourages all home buyers to find reputable names for insurance. There have been at least half-a-dozen online insurance companies leave Colorado because they came in a few years ago thinking they could buy up the market with low rates, but then the 5/9/2023 hailstorms hit, and those companies didn’t have enough money stashed to pay their claims. They’re long gone.
While most of the reputable companies have increased their rates and cost more than online companies, these reputable companies have a more solid financial backing and are able to take a big financial hit from claims payouts. A company without that backing isn’t worth the risk.
It's Important to Now Price Out Home Insurance Very Early On in the Contract Process
It used to be that a buyer went under contract to purchase a home and would have 1-2 weeks to price out insurance polices. Because the pricing was so much lower, it was a given they would have enough reasonably priced options to choose from. Insuring a home really wasn't a concern.
Because of the nature of insurance now, Steve recommends that the sequence be flipped to check the insurability of the home first before moving forward to avoid possible surprises and scrambling to find insurance. We will be utilizing this approach on our contracts going forward.
There is a lot to unpack here. If you'd like to reach Steve to discuss insurance options or review your current policy, you can reach him here.
As always, if you have questions for us please don't hesitate to reach out. Until next time-
Allison and Ken
