By Vince Ciulla, vice president of personal lines, Van Gilder Insurance

Claims from wildfires have skyrocketed in the last decade as more urbanites move to forested areas. In Colorado alone, more than 1 million people live near National Forest lands or in the mountains and foothills, otherwise known as the Wildfire Urban Interface (WUI).

We only have to look at the high price tag of last year's Waldo Canyon wildfire, roughly across the highway from this year's Black Forest wildfire, to see the enormous cost: the number estimated for insured losses is $292.8 million. Insurers paid out an estimated $453.7 million for the 2012 Waldo Canyon wildfire that destroyed 347 homes in the Colorado Springs area and is the state's most costly wildfire.

Homeowners may soon find that insurance companies could be reluctant to insure their dwelling if it is in a “high-risk” location. Agents and brokers need to familiarize themselves with some companies that have recently announced new underwriting guidelines for brush/wildfire zones or “red zones” based on certain ZIP codes.

Some of these guidelines include:

Restrictions on eligibility for fire protection for properties in the highest fire risk classification or Public Protection Class 10 locations
Insureds in designated areas with any fire losses in the last 5 years are now ineligible for new policies
Homes in these areas on a slope in excess of 20 degrees are ineligible
Homes in these areas with brush, forest, or uncleared areas within 100 feet of the structure are ineligible
Public Protection class 8B or 9 risks will require a supplemental property brush inspection report.

Already in place in California and Washington, these stricter guidelines are new to Colorado. But with increasing concern over pricing and product, it's a safe bet that more insurers will be introducing them in the future. And with wildfires burning right now in Yosemite National Forest, it's likely that more insurance companies will announce changes to underwriting guidelines for risks in wildfire areas in the months ahead.

In a recent article in the Denver Post, Carole Walker of the Rocky Mountain Insurance Information Assoc. reported, “Colorado has joined the nation's top 10 states in terms of disasters. As a result, premiums have risen by 10 percent or more or in some cases homeowners have been dropped altogether by their insurance company.”

The large hail losses sustained by insurers over the last few years has been the main reason for the recent rate increases and non-renewals. But between the fires of last year, and this year thus far, wildfire losses have taken center stage. Companies that may have taken heavy losses from the fires will most likely weigh this in future rate reviews.

As a result of the fallout from the claims complaints from recent wildfires, state government officials moved forward with action items to address some of the issues.

Colorado Gov. John Hickenlooper signed into law in May Colorado's Homeowners Insurance Reform Act of 2013. Signed only weeks before Colorado's wildfire season began, the new law, effective Jan. 1, 2014, will provide for the following:

Additional living expenses (ALE) coverage must include a minimum of 12 months of coverage, with the offer to buy-up to 24 months
In a total loss of the contents of an “Owner-Occupied Primary Residence,” the policy must offer the policyholder a minimum of 30 percent or more (by mutual agreement) of the value of the contents coverage noted on the declarations page without requiring a written contents inventory. To receive the full contents replacement value, the policyholder may accept the initial offer and then submit a written inventory as required by the insurer.
Provide methodology, provided by insurance company, used for depreciation of dwellings' contents if less than 100 percent is paid out to insured
Allow up to 365 days to file an inventory of the a home's contents
Extended replacement coverage must be offered that is at least 20 percent of the dwelling limit
Ordinance and law coverage must be offered that is at least 10 percent of the dwelling limit if the home is insured to 100 percent or greater of the cost to rebuild
Must make policy available to policyholder with 3 days upon request
Must not issue or renew a homeowner's insurance policy that requires the policyholder to file suit against the insurer that is shorter than required by law. Colorado statute of limitations is 3 years;
Must consider, subject to underwriting requirements, a licensed contractor or architect's estimate submitted by the policyholder as the basis for establishing dwelling replacement cost
Policy language must not exceed a 10^th grade reading level, or score less than 50 on the Flesch-Kincaid reading scale.

Created Jan. 13, 2013, Gov. Hickenlooper's Task Force on Insurance and Forest Health was tasked with having various interest and experience groups discuss wildfire-related issues including insurance, forest health, infrastructure, and water and air quality issues. The main focus areas include:

Environmentally sensitive ways to improve forest health and sustainability in order to limit future wildfire exposure
Building and other development activities and requirements in the Wildfire Urban Interface (WUI)
Risk assessment through mapping
The availability of firefighting resources and coordination
Ways to maintain and protect water quality and watersheds
Maintaining a healthy insurance marketplace to protect against financial loss from wildfire.

The task force must consider all options to address these topics including: tailoring an insurance product to hazard-prone areas, education efforts, memorandums of agreement, intergovernmental agreements, letters of cooperation, changes to existing law and regulations and/or new laws and regulations. The task force's recommendations must be submitted to the governor by Sept. 30.

Special Reports /

What Agents Should Know About Wildfire Coverage Changes

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