Rebuilding Costs May Exceed Colorado Fire Victims’ Insurance

An aerial photograph of a home in early-stage construction.

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Victims of the recent Colorado blaze, which was the most destructive wildfire in the state’s history, may soon learn that rising construction costs have increased the cost of rebuilding beyond what their insurance coverage allows.

About 1,000 homes were destroyed in Colorado’s Marshall Fire, which destroyed homes and businesses in the suburbs between Denver and Boulder. Losses from the wildfire are expected to reach $1 billion.

While most homeowner victims are believed to have insurance, observers say many may not have enough to cover the extent of their losses.

“There are individuals in both impacted areas that are either uninsured or did not have adequate coverage in place to compensate for their losses,” Erin Collins, a senior vice president at the National Association of Mutual Insurance Cos., told The Wall Street Journal.

In general, about two-thirds of fire victims nationally tend to be underinsured, according to United Policyholders surveys.

Many homeowners are unsure of how much coverage they need. Also, some may opt for cheaper policies to keep annual premiums lower.

“There is likely going to be an issue about underinsurance” from inadequate coverage and continuing inflation, Michael Conway, Colorado insurance commissioner, told The Wall Street Journal. “There is so much that will be in flux about inflation, building costs, labor costs that when we get to the point we are rebuilding these homes, the world will likely look much different.” Construction will likely not get underway for another two years.

Also, the Federal Emergency Management Agency provides some financial assistance for underinsurance to help homeowners, Conway said.

The magnitude of the home repairs likely will further strain both builder supply chains and builders who had already been stretched thin as they tried to meet the region’s buyer demand, experts note.