Will Colorado’s new attempt to cut insurance costs succeed where California failed?

The Colorado problem: real losses, not regulatory fiction

Colorado’s insurance crisis is grounded in hard actuarial reality. Homeowners insurance premiums in the state have risen approximately 100% between 2018 and 2024, according to the Colorado Division of Insurance. The average annual premium now stands at roughly $4,086 – a rise of 58% from 2018 to 2023 alone – and some foothill and mountain ZIP codes exceed $7,500 per year.

Walker frames it plainly: Colorado is a “dual catastrophe state.” The primary culprit is not wildfire, as many assume, but hail. Colorado ranks second in the nation for hail damage claims, and the state’s own Division of Insurance data, drawn from 20 carriers representing 80% of the market, shows hail accounts for 26% to 54% of total homeowner insurance premiums depending on the county.

“Our number one cost driver of homeowners insurance premiums is hail,” Walker told Insurance Business. “But certainly we’re also ranked second in the nation for the number of homes in high-risk wildfire areas.”

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The cumulative effect has made Colorado one of the worst-performing markets for insurer profitability in the country. Between 2020 and 2024, the Colorado homeowners insurance loss ratio averaged 78.6%, driving sustained rate increases. The top 10 insurers now control 88.3% of the market – up from 85.3% in 2014 – as smaller carriers have exited, reducing competitive pressure. “It really has been the perfect storm for insurance companies who are really trying to work through the challenges we have in this marketplace,” Walker said.

Colorado’s roadmap: supply-side and risk-side solutions

What distinguishes the Polis roadmap from other state-level insurance interventions is its focus on reducing underlying risk rather than mandating artificially low prices. The plan has three major pillars: home hardening and mitigation incentives, insurer accountability for risk scoring, and prioritizing rebuilding after catastrophic events.

Walker put the underlying philosophy directly: “We have to stop looking at insurance solutions and really start looking at risk reduction solutions.”

The centerpiece of the legislative package is Senate Bill 155, which would establish a “Strengthen Colorado” hail mitigation grant program to fund impact-resistant, hail-fortified roofs for homeowners. The program would be financed by a 0.5% fee assessed on insurers, which the legislation prohibits carriers from passing directly to policyholders. Walker confirmed that the insurance industry, while not in full support, broadly backs the mitigation goal. “We know that, especially if it’s science-based, based on the Insurance Institute for Business and Home Safety, which is the research arm of the insurance industry, that is a standard that we agree is what we need to do to reduce risk,” she said.

The current bill marks a significant improvement over last year’s failed predecessor. Walker explained that the 2025 version was a 33-page bill that bundled prior approval rates, loss ratio benchmarking, a policyholder surcharge, and a state-funded wildfire reinsurance program – a combination the industry could not accept. “They have simplified the bill where it is focused on hail roofing mitigation,” Walker said, “and they took the reinsurance portion of the bill for wildfire and made it into a study.”

Walker expressed particular relief at the removal of the state wildfire reinsurance program. “We had a lot of concerns about these state reinsurance programs,” she said. “They fail in other states – they’re just never funded at the right amount. There’s not enough money to be able to do what a reinsurance company does, and there’s not an accessibility or availability problem that we’re trying to address for reinsurance in Colorado.”

On wildfire, a separate companion bill, HB 1182, would establish a wildfire building code mandating that new homes be fire-hardened. Starting in July, insurers will also be required to provide homeowners with their individual wildfire risk scores, including credit for mitigation efforts. A third bill from state Senators Marc Snyder and Lisa Frizell would allow homeowners to deposit up to $50,000 per year into tax-exempt savings accounts for mitigation improvements, hail-fortified roofing, or insurance deductibles.

Industry caution: the $800 number under scrutiny

While Walker and the broader industry support the mitigation direction, she issued a pointed warning about public expectations around the governor’s headline $800 savings figure – and the timeline attached to it.

“We do have concerns about people’s expectations that even all of these programs combined will bring down rates by a certain amount or take us from 6th to 13th, or save people on average $800,” Walker told Insurance Business. “The program itself will take an extended amount of time to ramp up. It’s a grant program, so it’s not a requirement. Some people will choose to get a grant or put on a fortified roof. Right now, we don’t have any fortified roofs in Colorado. We don’t have any certified contractors.”

She was equally direct on the timeline: “Putting an expectation that premiums will come down in a matter of months certainly isn’t something where we can turn around a market like Colorado – especially, that’s been so challenged for property for many, many years.” Asked about Colorado’s broader market standing, Walker was blunt: “We’re one of the worst profitability states in the country.”

These concerns are well-founded for reasons that go beyond contractor availability. Governor Polis is term-limited and leaves office in January 2027. This means the next governor will be responsible for implementing the most ambitious elements of the roadmap. Several enabling bills remain in the legislature, and the $800 figure is a projection built from a combination of enacted legislation, pending bills, and regulatory changes, not a single enforceable commitment.

The California contrast: when price controls backfire

To understand why Colorado’s approach matters – and why Walker invokes California as a warning – it is instructive to examine what happened when a state chose price suppression over risk reduction.

California’s homeowners insurance crisis traces directly to Proposition 103, a 1988 ballot initiative that imposed a prior-approval rate regulation system, requiring insurers to obtain permission from the state before adjusting rates. The measure also converted the insurance commissioner from an appointed position to an elected one, injecting political considerations into what had been a technical actuarial function. The result, as the International Center for Law & Economics concluded, was that California was effectively telling insurers “to ignore the science” of risk pricing.

Proposition 103 required insurers to price catastrophe risk using historical loss data spanning at least 20 years – a backward-looking model ill-suited to a state where wildfire risk has changed dramatically. The law also prohibited insurers from incorporating reinsurance costs into rate filings, cutting off a critical market signal. The consequence was systematic rate suppression: from 2018 to 2022, California had the largest gap between actuarially appropriate rates and approved rates of any state in the nation.

The market’s response was predictable. Since 2022, seven of California’s top twelve homeowners insurance carriers restricted new business, declined renewals, or exited the state entirely. With fewer private options available, more Californians flooded into the state’s FAIR Plan – a program designed as a last resort – which provides less coverage at higher premiums. The January 2025 Los Angeles wildfires, which produced estimated insured losses of $40 billion, accelerated the crisis to its breaking point.

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Walker draws the lesson explicitly. “We have cautionary tales of a California where there’s an overreach and artificial suppression of rates,” she said. “I think we have to focus on what makes Colorado a better state for insurance companies to do business in, what will make our state more competitive, a more stable environment. I think that also needs to be part of the conversation.”

The 0.5% fee: a funding mechanism with caveats

One of the more nuanced industry positions concerns the 0.5% insurer fee that funds the hail mitigation grant program. While the legislation prohibits carriers from passing it directly to policyholders, Walker acknowledged the practical reality is more complex.

“While it’s not a direct surcharge, it is something that is ultimately passed on to policyholders,” she said. More broadly, Walker argued that Colorado’s funding mechanism is a second-best solution born from the state’s fiscal constraints rather than a model for other states. “Most of these programs in other states that have been successful are supported through premium tax dollars that the insurance companies already pay,” she explained. “A portion of that premium tax then gets paid into these grant programs – which is the right way to do it.”

The reason Colorado cannot follow that model, Walker noted, is blunt: “This is unique to Colorado in part because the state doesn’t have any money. They are after a billion dollars in the hole. Our premium tax dollars right now get swept into the general fund.” The practical message for other states considering replication: don’t copy the funding mechanism without first examining whether a more sustainable, premium-tax-based source is available.

The policy architecture comparison

The structural contrast between the Colorado and California models is stark. California’s Proposition 103 framework mandated government approval before rate changes; used backward-looking historical data to price forward-looking risk; barred reinsurance costs from rate calculations; politicised rate-setting through an elected commissioner; and created a consumer intervenor process that collected over $11 million in fees from insurers over two decades – costs ultimately borne by policyholders.

Colorado’s roadmap does not cap or suppress rates. It seeks to change the underlying risk profile of the insured housing stock through physical mitigation, to ensure mitigation efforts are accurately reflected in premiums through transparent risk scoring, and to reduce the volume and severity of claims through building codes and tax incentives. Critically, the industry – while not uniformly enthusiastic about every mechanism – has remained at the table rather than exiting the state.

Read next: California bill would expand Fair Plan to full homeowners coverage — insurers push back

The R Street Institute, which has studied Colorado’s approach closely, described it as “exemplary” and noted that its emphasis on objective, fact-based analysis of loss drivers represents sound public policy that other states facing similar challenges could emulate.

Reasons for optimism – and caution

There are legitimate reasons for insurance professionals to view the Colorado roadmap with cautious optimism. The plan addresses actual loss drivers. Hail-resistant roofing, if widely adopted, would materially reduce claim frequency and severity in one of the nation’s most hail-active states. Wildfire risk scoring that credits mitigation creates proper incentives without distorting the market. Insurer support – even qualified – for the core legislation signals the private market believes the approach is workable.

But Walker’s caution deserves equal weight. Colorado currently has no fortified roofs and no certified contractors to install them. The grant program is voluntary. The governor who championed the roadmap leaves office before the target date. And Colorado’s loss history – among the worst profitability records in the country – means the market needs sustained improvement over years, not a single legislative session.

“While mitigation is a good first step and something that we have supported – and it’s our science from the Insurance Institute for Business and Home Safety – that’s all positive,” Walker told Insurance Business. “However, putting an expectation that premiums will come down in a matter of months certainly isn’t something where we can turn around a market like Colorado.”