Colorado legislators are reviewing House Bill 1302, which proposes a loss ratio threshold for home insurance to determine when rates become excessive.
The bill also introduces a wildfire reinsurance program and outlines funding for a home hardening initiative.
Under HB 1302, an insurer’s rates would be considered excessive if its loss ratio falls below 75 over a three-year period. If an insurer’s loss ratio is below that threshold, it would be required to submit rates at least 5% lower than the previous year’s rates.
The provision is designed to ensure that a significant portion of home insurance premiums goes toward paying claims while attempting to control premium increases, according to Representative Kyle Brown, a Democrat representing District 12 and one of the bill’s sponsors.
Carole Walker (pictured above), executive director of the Rocky Mountain Insurance Information Association, said applying a loss ratio threshold to property insurance may not be practical.
In a report from AM Best, Walker said property insurance operates differently from health insurance, where similar loss ratio requirements already exist.
Additionally, HB 1302 calls for the establishment of a wildfire reinsurance enterprise under the Division of Insurance. The enterprise would provide reinsurance to home insurers in the state, funding the program through revenue bonds, catastrophe bonds, and investment income.
If no major disasters occur during the bond terms and there are insufficient funds to cover bond redemptions, the enterprise will have the authority to collect fees from insurers to address shortfalls.
Walker said these state-run enterprises would add financial burdens on insurers, functioning as additional taxes. She said the provisions in the bill introduce new uncertainties into the market and could have the opposite effect of what lawmakers intend.
She said the bill’s premise is difficult for insurers to accept because while it is designed to reduce premiums and stabilize the market, its actual impact could be the opposite.
Outside of the latest wildfire proposal, Colorado’s reinsurance sector has undergone significant developments in recent years, with the state claiming that it led to substantial savings for residents in the individual health insurance market.
In 2019, Colorado implemented a reinsurance program aimed at reducing health insurance premiums for individuals purchasing insurance independently. The program functions by reimbursing insurers for high-cost claims.
The Centers for Medicare and Medicaid Services approved Colorado's application for a Section 1332 waiver in July 2019, enabling the state to establish its reinsurance program. This approval led to an average premium reduction of 18.2% in the individual market for 2020.
For 2025, the program is estimated to save residents nearly $493 million, equating to an average premium reduction of 23.8% for those purchasing insurance on the individual market. This brings the total estimated savings to over $2 billion since the program's inception.
In addition to the latest HB 1302, the state legislature is considering new disclosure and notification requirements for insurers that use risk models in underwriting. If enacted, rate filings would need to include descriptions of the models used, how they affect rates, and their role in underwriting.
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