Not too long ago, one way to realize the dream of homeownership in the Southwest was to purchase a modest piece of land outside city limits, and build a cozy cabin in the hills, surrounded by trees.
This in itself is difficult to pull off with astronomical mortgage rates, pricey construction and the availability of buildable lots on decent ground. We’ve opined before on the surest way for Americans to build wealth is to buy a home, if at all possible.
And after hurdling all of the obstacles, that home must be insured to protect that tremendous investment that for many of us, is everything. Lenders usually require it, anyway.
But now, homeownership is becoming even more out of reach in the Southwest as insurance is increasingly unavailable for people who live in wildfire-prone neighborhoods. One more contributing factor that makes this beautiful area unaffordable for so many.
The thing is, much of what we love about the Southwest are the characteristics that make it a wildfire-prone kind of place.
It tugs at the very essence of this landscape and why we choose – or try – to live here.
This recent insurers’ retreat hurts all of us. Homeowners, agents losing business, populations of needed workers to include police officers and teachers, who could only afford to live outside city limits.
All consumers will pay more into a large risk-sharing pool that is the insurance industry, still reeling from the Marshall Fire in December 2021 in Boulder County, the most destructive fire in Colorado history.
The ripple effect of denied covered and outrageous premiums just hit the Southwest around September 2023. But mountain communities close to the Front Range felt the changes by mid-summer. There, consumers saw three-fold increases in policies for homes built of corrugated steel and stucco that would have a tough time burning to the ground.
The insurance industry of assessing risk, dialing in the market, pricing policies, scoring susceptibilities to natural disasters, and mitigating factors of metal decks and stairs and thinned stands of pines, sees and measures all of it.
A game of statistics and chance.
As reported in The Durango Herald on Jan. 14, getting insurance isn’t possible, at this time, for residents in parts of Durango Hills, Durango West, Forest Lakes, Edgemont developments and near Purgatory Resort. The ones who’ve always had insurance face the possibilities of unrenewable policies. At least, Geico, Travelers and State Farm are not writing policies in wildfire-designated areas.
And some consumers have seen premium costs doubled, or worse.
As of 2025, the FAIR Plan will be a quasi-governmental insurance of last resort when coverage is unavailable through traditional means. The FAIR Plan, which will cover a private home up to $750,000 with actuarially sound rates, hasn’t revealed what annual premiums will be. That’s one for the board with members from insurance companies, consumer advocates and industry professionals, hashing out plans since October.
But if homeowners can’t get insurance elsewhere, what are annual “sound rates” in real dollars? Here, at least one resident who struggled to find insurance paid close to $6,000, after proof of $60,000 worth of fire mitigation and home hardening.
We hope this won’t be the case, but how could the FAIR Plan do much better? If it did and the FAIR Plan became a market choice, this could annihilate private insurers. Best that the government is a stopgap and doesn’t wade too deep into the insurance business.
Locally, insurers are already facing a tough business climate and the real risk of insolvency. Again, in the Herald, Kierstin Godson, office manager at Jay Hwang’s Durango State Farm agency, estimated the office’s numbers have “plummeted” by 20% to 30% since that shift of more uninsurable properties. Can’t make money if policies can’t be written.
Wildfire is our predominant risk in the Southwest. But across Colorado, damage from hailstorms costs insurers more than any other weather event. And with updated FEMA maps, the flood plain expanded in Hermosa Creek watershed, which will effect codes, regulations and, potentially, the price of insurance.
If we’re free from catastrophic events for a few years, FAIR could become a model for private insurers to expand insurance plans. But chances are, not everything will be covered. Rebuilding a home to previous standards may be a thing of the past.
Instead of replacing a home it might replace what’s equal to three-quarters or half a home. Not the same, for sure, but it’s something we may have to live with. We’ll have to fall out of love with our homes as we know them, along with our belongings.
From now on, insurers may see that warm cabin in the urban/woodland interface as being in harm’s way instead of that homeowner’s dream come true.
Looks like all around, we’ll be living with more risk.
