This bill establishes the Wildfire Catastrophe Reinsurance Enterprise, a state-run program aimed at stabilizing Colorado’s homeowners insurance market in areas at high risk for wildfires. It introduces reinsurance payments, catastrophe bonds, and insurer fees to ensure insurance availability and affordability for homeowners.
Key Provisions & Their Impact1. Creation of the Wildfire Catastrophe Reinsurance Enterprise
What It Does:
Establishes a state reinsurance program to help insurers cover wildfire-related losses.
Provides financial backing through reinsurance payments, catastrophe bonds, and insurer fees.
Impact:
Encourages insurers to continue providing coverage in wildfire-prone areas.
Prevents major financial losses for insurance companies, reducing premium spikes for homeowners.
2. Funding Mechanisms
Revenue Sources:
Insurer Fee: A charge on insurance companies offering homeowners insurance in Colorado.
Catastrophe & Revenue Bonds: State-issued bonds to raise funds for wildfire-related insurance payouts.
Federal & Private Grants: Allows the state to accept financial support from federal agencies and private donors.
Impact:
Creates a dedicated fund to cover wildfire-related insurance claims.
Helps stabilize insurance costs for homeowners in high-risk areas.
3. Reinsurance Program for Insurers
What It Does:
Provides reinsurance payments to insurers facing high wildfire-related claims.
Requires eligible insurers to participate in the program if they operate in high-risk areas.
Impact:
Ensures insurers can afford to pay wildfire claims, reducing the likelihood of market withdrawals.
Helps keep homeowner premiums more stable in fire-prone areas.
4. Rate Regulation for Homeowners Insurance
What It Does:
Limits excessive premium increases by setting a minimum loss ratio of 75%.
Requires insurers to adjust rates downward if they are found to be making excessive profits.
Insurers must submit two rate filings—one reflecting the impact of the reinsurance program and one without it.
Impact:
Prevents price gouging by insurers.
Ensures fair pricing for homeowners in wildfire-risk areas.
Insurers must offer coverage statewide, including in high-risk wildfire areas.
Insurers must reduce premiums in high-risk areas if they receive reinsurance payments.
Insurers must properly handle wildfire-related claims to remain eligible for reinsurance support.
Impact:
Prevents insurers from selectively avoiding wildfire-prone regions.
Ensures homeowners in fire-risk zones still have access to affordable insurance.
6. Utility Protections in Wildfire Disasters
What It Does:
Prevents utilities from passing costs of purchasing catastrophe bonds onto customers.
Protects utilities from financial liability if a wildfire-related disaster occurs.
Impact:
Reduces financial risk for utilities.
Helps maintain stable utility rates for consumers.
Sunset & Review Clause
Program is set to expire on September 1, 2035, unless extended by the legislature.
The state will conduct a review before the repeal date to determine whether to continue the program.
Overall Effect of the Bill
Encourages insurers to stay in Colorado, especially in high-risk wildfire areas.
Stabilizes homeowners insurance costs by providing financial backing to insurers.
Prevents excessive insurance rate hikes through regulation and oversight.
Ensures that wildfire-affected homeowners receive timely insurance payments.
This bill is a major step in addressing Colorado’s wildfire insurance crisis, aiming to protect both homeowners and the insurance industry from massive financial losses.
Summary
The bill creates 2 enterprises in the division of insurance (division)
in the department of regulatory agencies.
The bill creates the strengthen Colorado homes enterprise
(strengthen homes enterprise), which is a state-owned business that imposes and collects a fee from insurance companies (insurers), including the FAIR plan association, that offer homeowner's insurance policies in Colorado, which fee is equal to 1.5% of the dollar amount of the premiums that the insurer collects from homeowners for issuing homeowner's insurance policies (insurer fee).
With the insurer fee revenue, the strengthen homes enterprise
board administers a grant program (grant program) to strengthen homes against the risk of future damage claims caused by high winds, wildfire, hail, and other extreme weather events (extreme weather events) by allowing a homeowner to use grant money to upgrade their roof system with certain resilient roof materials. By paying the insurer fee to support the grant program to retrofit homes with resilient roofs, insurers reduce their overall risk in the market due to hail and other extreme weather events.
The bill also creates the wildfire catastrophe reinsurance enterprise
(reinsurance enterprise), which is a state-owned business implementing and administering the wildfire catastrophe reinsurance program (reinsurance program). The reinsurance program makes reinsurance payments to insurers that offer homeowner's insurance on properties located in the state to partially mitigate losses in the event of a state or federally declared wildfire-related disaster (wildfire-related disaster). The purpose of the reinsurance program is to stabilize the homeowner's insurance market in the state and to attract and retain homeowner's insurers. In exchange for access to the reinsurance program, the reinsurance program requires insurers to sell homeowner's insurance in areas of the state that are at high risk for wildfires.
To pay for the reinsurance program, the reinsurance enterprise: •
Issues revenue bonds secured by the reinsurance enterprise;
•
Issues a catastrophe bond to a person that purchases the bond but pays the principal to cover costs of a wildfire-related disaster if it occurs;
•
May impose and collect an insurer fee on insurers to cover a shortfall if a wildfire-related disaster does not occur during the bond term and the reinsurance enterprise has insufficient money to redeem the bonds at maturity; and
•
Invests the revenue from the bonds and insurer fees.
In addition, the bill sets the loss ratio for homeowner's insurance
by presuming that the rates charged to purchasers are excessive if the insurer's loss ratio is less than 75% over a 3-year period and, if rates are in excess of the loss ratio, requires insurers to submit rates that are at least 5% less than the previous year.
