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Insurance Advisors' Newsletter
   December 2013

Homeowners Insurance
Undergoing an Overhaul in Colorado
Source: Aldo Svaldi at The Denver Post

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Insurance Law Changes

  • 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.
  • Additional living-expense coverage for a year, with an option for up to 24 months.
  • 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.
  • Paperwork must be written at a 10th-grade level or lower starting in 2015. 

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Come celebrate the holidays with Insurance Advisors. We want to thank you for your continued business and referrals. 

We'll be celebrating with cocktails and food at elev 5900, 19751 E. Mainstreet in Parker, from 4:30 p.m. to 6:30 p.m. on Dec. 10th. 

Please RSVP to kyle@theinsuranceadvisors.net.

We look forward to seeing you!

Insurance Advisors

The destructive wildfires of the past three years have sparked an overhaul of homeowners insurance in Colorado that consumers should start noticing in coming weeks.

"The cycle of natural disaster has brought to the forefront the importance of insurance. A few years ago, there wasn't much attention," said Carole Walker, executive director of the Rocky Mountain Insurance Information Association.

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.

Provisions of the law will take effect next year, although consumers may start receiving more detailed disclosures with their renewal statements and invitations from agents to sit down and review policies.

A key problem that surfaced after recent disasters was that replacement-coverage limits for dwellings often came up short of what was needed to rebuild a comparable home.

Rebuilding costs can escalate sharply when a large number of homes are destroyed in a concentrated area, especially in remote locations, and when new construction must comply with stricter building codes, Walker said.

That replacement in insurance contracts didn't mean replacement as the layperson understands it came as a shock to fire victims such as Dale Snyder, who said fellow victims of the High Park and Woodland Heights fires found themselves on average $103,000 short of what they needed to rebuild.

Victims filing claims were hit with trapdoors such as policies that allowed for two years to rebuild but required that all contents be inventoried within 60 days and replacements purchased within a year. 

"We are happy with what we got," Snyder said of the legislation. "It is a good start."

A primary goal of the new law is to have homeowners and their insurance providers discuss replacement value upfront rather than after a home is destroyed.

"The coverage amount listed on your attached declaration page is only an estimate of the replacement cost value of your insured property. It may not be sufficient to replace your property in the event of a total loss," a new summary of coverage form states.

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.

Policyholders next year will be able to submit a replacement-cost estimate from a licensed contractor or architect for the underwriter to consider, which might help get more accurate coverage limits on custom homes.

More detailed disclosures also try to help consumers understand exactly what is covered and what isn't, such as damage from earthquakes and floods.

Although the law puts a greater burden on insurance companies to communicate, it also requires that consumers step up and make an effort to understand and act in their own best interests.

"The companies are required to share all of this information, but how many consumers are going to read it?" asked Robert Edgin, an agent with American National Insurance in Colorado Springs.

With policy renewals running at 100 to 150 pages, Edgin is concerned that most people won't take the time, even with another reform in 2015 that requires insurance documents to be written at a 10th-grade reading level or lower.

That said, recent fires have resulted in Colorado Springs residents taking a more serious look at their homeowners-insurance policies and what they cover.

One client who ignored 12 years of invitations to sit down for a review finally showed up, Edgin said. Meetings that once might have run 20 minutes are running closer to 40 minutes, given the more detailed explanation of options.

Another source of consternation for some fire victims, Snyder said, was having to itemize lost contents, an exercise that can compound the emotional distress.

Most home policies cover the depreciated value of contents, which must be itemized, up to 50 percent or sometimes up to 75 percent of the value of the structure.

The new law allows those who don't wish to itemize contents after a total loss to receive a payout starting at 30 percent of the maximum content coverage their policy otherwise provides.

The law allows a full year to submit a list of lost items and another year after temporary living-expense coverage has expired to purchase those replacement items.

One problem exposed by the fires was that the standard of 12 months of living expenses provided wasn't enough to allow for rebuilding. 

Although some insurers offered 24 months of additional living expenses, the new law requires all insurers to offer a minimum of 12 months and to offer an option for up to 24 months.

Homeowners who believe their insurance company has acted in bad faith or breached the contract will get three years to file suit compared with the previous limit of one year. That provision became effective May 10.

One reason some homeowners found themselves uninformed was because they received bad or incomplete advice from their agents, Snyder said.

"A lot of these agents and adjusters had no idea what they were selling," he said. 

To make sure that agents are up to speed on all the changes, insurance companies are holding courses and training. The new law requires insurance producers to take three hours of continuing education in homeowners insurance.

"We are looking at this as a way of making sure our agents are fully aware of what we are doing," said Stephanie Howell, a spokeswoman with Allstate Insurance in the Denver Tech Center.

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