‘Governors are going to have to create a new system’: Leaders in the West lambast insurance industry over rising costs for homeowners

As extreme weather events fuel an explosion in homeowners insurance premiums, governors representing states in the West are expressing frustration with the industry, saying companies need to do more to bring down costs. 

Some are demanding more transparency on pricing decisions. Others are calling for a complete overhaul of the system. What that looks like in each state may differ, but during the second day of the Western Governors’ Association’s winter meeting in Las Vegas on Tuesday, leaders agreed that something needs to change. 

“Homeowners’ insurance rates have skyrocketed over the last few years — not just in Colorado, but across the West,” Colorado Gov. Jared Polis said in an interview following a panel discussion. 

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“Of course we know that there are solutions, like hail-resistant roofs, like community-level and home-level risk mitigation,” Polis continued. “But we need to start seeing real credit for that in lower insurance costs.” 

In Colorado, the state-run division of insurance reported a 52% increase in premiums for single-family homes between January 2019 and October 2022. High-valued buildings like multistory condominium complexes have, in some cases, seen insurance costs double several times over. 

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Neighboring states have seen less dramatic increases, though average insurance rates have still climbed by double digits in recent years. 

A key reason is an increase in severe climate-related incidents that industry representatives say threaten insurance companies’ financial stability. Companies pay for reinsurance to be able to cover a home. In the face of recent disasters, insurance providers have been on the hook for billions of dollars. 

The 2021 Marshall Fire in Boulder County, for example, destroyed over 1,000 homes and is estimated to have cost $2 billion in damages while a 2017 hail storm that pummeled northern Colorado and the Front Range cost $2.3 billion. 

More recently, the wildfires that erupted on the island of Maui in August 2023 are projected to cost insurers over $3 billion.

With these events becoming more commonplace amid a changing climate, insurance companies have sought to reduce their risk by raising premiums or, in some cases, dropping coverage for homeowners in vulnerable areas. 

Polis said states like Colorado understand the importance of funding and promoting efforts to mitigate risks, such as home hardening for wildfires. But he feels the industry hasn’t provided the return on investment.

“What’s frustrating is spending money here and there while homeowners insurance continues to go up,” Polis said. “That has to end.”

Industry representatives and policy experts, during a Tuesday panel discussion, said mitigation remains the No. 1 way homeowners and communities can take matters into their own hands.

“I do not believe that we can strictly price or strictly regulate or strictly suppress our way out,” said Frank Frievalt, director for the Wildland-Urban Interface Fire Institute at California Polytechnic State University. “We need all three of those. But we need to add mitigation as really our primary strategy for the existing structure.” 

Anne Cope, who conducts industry-funded research on different mitigation strategies, said for wildfires, defensible space — meaning an area where vegetation has been cleared or reduced — and the right materials can be enough to save a home. 

“The science is actually brutally crystal clear,” Cope said. “It is preventative and manageable.” 

Idaho Department of Insurance Director Dean Cameron said his state is pursuing a two-pronged approach to help drive down insurance costs that includes helping homeowners pay for mitigation efforts and creating a reinsurance pool for insurers covering high-risk areas.

The latter is “intended to act as a mechanism to encourage carriers to come into the state and stay in the state,” Cameron said. 

Intense weather events also aren’t the only driving factor for higher insurance rates. 

Following the COVID-19 pandemic, construction and labor costs increased by around 40% “which is impacting the cost of every type of property loss and claim,” said Karen Collins, vice president of the American Property Casualty Insurance Association. 

“So the key for policymakers is to be mindful of policy proposals that may introduce higher exposure to costs, including regulatory compliance burdens that could exacerbate these recent market conditions,” Collins said. 

But Hawaii Gov. Josh Green, who has been critical of the insurance industry in the aftermath of the devastating Maui fires, said he isn’t convinced insurers have done enough to help homeowners. 

Green has specifically lambasted State Farm for its role in holding up a proposed $4 billion settlement for the Maui victims as it attempts to recoup money it spent on insurance payouts following a disaster that destroyed roughly 3,500 residences, killed 102 people and displaced 12,000.

If successful, the insurer could claw back $1.6 billion of the settlement money, Green said. 

“If the companies turn their back on these people that were injured … there won’t be real recovery for those individuals, which means that the insurance system now no longer works,” Green said. “If the insurance system no longer works, governors are going to have to create a new system.”

The Hawaii governor, in past statements, also called out the tens of millions in bonuses that have been paid to State Farm’s CEO at a time when homeowners are struggling to afford the cost of insurance. 

Polis said the industry needs to be more transparent about how it assesses risk for homeowners and price modeling. Responding to Gov. Green’s comment to create a “new system,” Polis said Hawaii’s leaders have “immense frustrations,” as does Colorado. 

“We can spend hundreds of millions or billions of dollars, but we have to know that that will lead to decreases in risk and homeowners insurance,” Polis said. 

Polis said reform measures around transparency in the industry is a high priority. He signaled such efforts may come forward in future legislation. 

“One big piece that we still need to get our arms around is preventing increases in homeowners insurance as well as people being dropped from their plans and not having availability,” Polis said. 

Tuesday capped a two-day meeting for the governors’ association. On Monday, state leaders discussed ways to leverage the West’s broad swath of underutilized federal lands, with ideas like building more affordable housing.