Colorado blazes trail on wildfire insurance reform

‍Half a year on from the blazes that ravaged Los Angeles, and in the midst of another devastating wildfire season in the American west, states are increasingly shouldering the responsibility of reforming insurance markets and bolstering household resilience as US President Donald Trump’s administration retreats from much-needed climate adaptation programmes.

Colorado has led the way.

At the end of May, governor Jared Polis signed into law HB 25-1182, a landmark bill requiring insurers to account for households’ climate resilience and wildfire mitigation efforts in their underwriting and pricing models.

If insurers do not build these mitigation factors into their models, they will be required to offer premium discounts to homeowners who can prove they have taken steps to reduce their wildfire exposure in line with science-based standards — for example, by hardening their properties, such as installing metal gutters and drainpipes, or clearing ignition-friendly vegetation.

“I think it is the most important piece of insurance legislation to pass this year, by any stretch,” says Dave Jones, director of the Climate Risk Initiative at the Center for Law, Energy and the Environment at the University of California, and a former California insurance commissioner. “What they’re required to do in Colorado is account for property, community, and landscape-scale forest management, not just in pricing, but more importantly, in the models  [the insurers] use to decide whether to write or renew the insurance. That is a big deal.”

The legislation comes against a backdrop of spiralling insurance costs for fire-prone regions across the US, and a retreat by even the largest carriers from underwriting high-risk properties. While the industry was initially sceptical of the bill’s early drafts, insurers ultimately backed the reworked version, seeing an opportunity to write more business and reduce wildfire exposure.

Modelling transparency

“The bill was [originally] entitled the Modeling Transparency Act, and we ended up in a place where that’s what it is,” says Carole Walker, executive director of the Rocky Mountain Insurance Information Association.

Under the law, insurers using their own wildfire risk or catastrophe models must submit detailed descriptions, actuarial justifications and mitigation discounts to the state’s insurance commissioner. Companies must also provide annual notices outlining each policyholder’s wildfire risk score, how it was calculated and how mitigation could improve it.

The legislation evolved from “very onerous” initial drafts to a version that promotes “meaningful, verifiable mitigation” while protecting insurers’ proprietary models from being laid bare in public, which could have cost them competitive advantages, adds Walker.

Jordan Haedtler, an adviser to the Insurance Fairness Project, a group that advocates for sustainable and equitable solutions to climate-driven insurance challenges, says he hopes Colorado’s law will improve transparency and fairness in the state and spark similar action elsewhere.

“This is something that states can do to bolster their  climate resilience and help push against the ways in which federal policy — including the cuts to [the National Oceanic and Atmospheric Administration and Federal Emergency Management Agency] — are going to make insurance markets more chaotic and less affordable,” he adds.

Jones says he is eager to see California take up the baton next, claiming that there is no reason why the major US carriers cannot incorporate wildfire mitigations in their underwriting models nationwide: “They can, and they should, but if they don’t, Colorado has demonstrated is that there is another path — which is to mandate.”

Still, the path forward for insurers — and homeowners — remains challenging.

“We hope [the law will] ultimately help reduce the risk, increase availability, and help reduce rates. But Colorado is still a high-catastrophe state. Market conditions here are very challenging,” says Walker.

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Source: https://www.sustainableviews.com/colorado-blazes-trail-on-wildfire-insurance-reform-2d113594/