Experts issue warning about concerning trend impacting US homeowners: 'Did not cover the cost'

Research has shown that most Colorado homeowners do not have enough insurance to rebuild after a loss. 

The findings focused on households affected by the 2021 Marshall Fire and reveal how rising risks are leaving families exposed. 

What's happening?

According to The Conversation, the study, published by SSRN, examined 3,089 insurance policies held by people whose homes were destroyed in the Marshall Fire, which burned more than 1,000 houses in Boulder County. 

It found that 74% were underinsured, and 36% had policies that covered less than 75% of the cost to rebuild.

The researchers wrote that "over the past five years, insurance premiums in Colorado rose nearly 60%," driven by increasing wildfire, hail, and other natural disasters. They said the pattern reflects a broader national reassessment of risk.

Underinsurance affected households across income levels, suggesting that any homeowner can experience negative consequences. 

"Even for households with incomes above $180,000, 72% held policies that did not cover the cost of a complete rebuild," the study said. 

Extended Replacement Cost policies, which add extra money to a homeowner's coverage if rebuilding becomes more expensive than expected, eased some pressure from post-fire cost spikes but did not close the shortfall.

"Eighty-seven percent of the Marshall Fire policies we studied included extended coverage,"  the researchers wrote. "But nearly three-quarters of them still fell short of covering the full cost to rebuild."

The study found a clear link between coverage levels and recovery. Only 18.8% of homeowners filed for reconstruction permits within a year. 

Do you have plans to significantly renovate your home? Yes — this year 👍 Yes — within a few years ⏱️ Not at the moment 👎 I don't own a home 🤷 Click your choice to see results and speak your mind.

Why is this concerning?

As increasing global temperatures dry out vegetation and heighten fire conditions, communities face greater danger from fast-moving wildfires. These events raise costs for insurers, whose growing losses contribute to rising premiums and reduced coverage.

When insurance does not match rebuilding costs, families may not return home after a disaster —  a pattern seen in areas facing repeated recovery challenges. 

This weakens long-term recovery and forces some to leave their communities. Meanwhile, human-driven pollution continues to heat the planet, fueling the extreme conditions that make insurance less accessible, as shown in analyses of worsening disaster impacts.

What can homeowners do?

The researchers said homeowners can request side-by-side quotes using identical coverage limits to avoid underinsuring in pursuit of a lower premium. They recommended reviewing coverage each year, especially after renovations or increases in regional construction costs.

They also found that insurers with strong ties to the community "are less likely to underinsure," offering another factor to consider when choosing a provider.

Community programs and policy efforts are also helping high-risk areas prepare for future disasters, including wildfire-mitigation work and home-hardening measures that can limit damage and improve long-term insurance stability.

💰Get TCD's free newsletters for easy tips to save more, waste less, and make smarter choices — and earn up to $5,000 toward clean upgrades in TCD's exclusive Rewards Club.