Record Wildfire Season Sparks Homeowners Insurance Reform

300px-DeerfireA direct result from the destructive wildfires that ravaged Colorado over the last three years, homeowners will very soon be seeing new insurance changes to their home insurance policies.

House Bill 1225 will take effect next year, making home insurance policies more user-friendly and easier to understand. The new legislation will ensure appropriate replacement coverage limits exist for rebuilding a home after a total loss. The law is inspired to help consumers understand exactly what is covered and what isn’t.

The bill remedies angst from affected homeowners who felt financially wronged when rebuilding costs fell short to actual restoration costs. The law will provide a platform for homeowners and their insurance providers to better communicate replacement value upfront rather than after a home is destroyed.

Legislators, responding to angry constituents, passed House Bill 1225 this year to boost the protection consumers receive in the event of a total loss and to improve the chances that they understand what their coverage provides.

Insurance changes include:

  • Insurers are now required to offer policyholders extended replacement-cost coverage for at least 20 percent of the replacement limit, plus law and ordinance coverage for another 10 percent of the coverage limits. That added coverage protects against cost increases related to stricter building codes or local ordinances.
  • Allotting homeowners more time to file an inventory of the contents of their house following a total loss claim for reimbursement.
  • Requires homeowner insurance policies to be written more clearly and in very plain language so everyone can understand their coverage; paperwork must be written at a 10th-grade level or lower starting in 2015.
  • Requires insurers to offer extended replacement coverage and law and ordinance coverage, with an explanation of the terms of this coverage.
  • Requires insurers to include at least one year of additional living expense coverage and to offer a total of 24 months of additional living expense coverage.
  • Requires an insurer to provide policyholders with an updated estimate of replacement cost based on a construction inflation index and revalidate the replacement-cost estimate based on contact with the policyholder.
  • Requires an insurer to consider an estimate from a homeowner’s licensed contractor or licensed architect as the basis for establishing the replacement cost.
  • Specifies that policyholders have the right to a written notification, at renewal, describing changes in their insurance contract language that are applicable to the renewal period.
  • Insurers must offer extended replacement coverage and law and ordinance coverage, boosting potential replacement values by at least 30 percent.
  • Homeowners can submit estimate of replacement costs if they disagree with the insurer’s value.
  • One year to make claims for lost content.
  • Total loss of contents can skip itemizing for a reduced payout of 30 percent of the maximum amount they are eligible for under a policy.
  • Three years to sue insurers for breach of contract.

Carole Walker Executive Director at Rocky Mountain Insurance weighs in:
“House Bill 1225 will hopefully strike a balance amongst insurance companies and lawmakers alike who have had ongoing dialog about how to provide Coloradans with real reform for policyholders in terms of preserving choices for homeowners and mandating coverage availability.”

A bit of context: The year 2012 destroyed more than 600 homes making it the most devastating year in Colorado history. California leads the score of homes nationwide at high risk from wildfire – about 2 million homes. Idaho ranks first for the state with the highest percentage of properties at risk – with 24% of homes at high or extreme risk.

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