The Colorado Department of Insurance has proposed eliminating one of its long-standing bulletins requiring insurance companies to pay contractor overhead and profit rather than deduct the amount until incurred. Such an elimination is obviously against policyholder interests and is the result of insurance industry lobbyists making inroads with Colorado insurance regulators who are supposed to be guardians of the public interest.

I filed a comment last week against eliminating the proposal. In part, I stated:

The proposed withdrawal of the longstanding Bulletin should not happen. The proposal to withdraw the bulletin is against Colorado policyholders’ interests, it is anti-consumer, creates incentives for insurance companies to wrongfully market their Replacement Cost Product while not paying replacement cost and incentivizes insurers to underpay and delay claims. We include as attachments a letter from Merlin Law Group, three articles on the topic and two other State insurance commissioner Bulletins which support keeping the Bulletin in place.

However, a simple example of why removing the Bulletin is against logic and public policy is the following:

A retired pilot saves his money for a retirement home and builds it on the side of a hill on land he has long owned in Colorado Springs. The home is built for a cost of $750,000. He buys Replacement Cost Insurance for $750,000. Two days after the construction is complete, a jet which ran out of fuel crashes into the home, destroys it and a guest of his in the house died. The retired pilot makes a claim for $750,000—the cost to rebuild the structure. The insurance company agrees but says that the Colorado Division of Insurance has removed a bulletin requiring it to pay the contractor’s overhead and profit until he rebuilds the house. So, they deduct the approximate 20% amount per the estimate and pay him $600,000 as the Replacement Cost less the contractor’s overhead and profit. To add insult to injury, the retired pilot, decides he never wants to rebuild at that site because of the emotional incident. In summary, he just paid $750,000 for the house, bought insurance for $750,000 and the Colorado Division of Insurance is allowing the insurance company to pay an amount less than the agreed Replacement Cost.

My letter is attached along with other state bulletins from Florida and Texas (B-0045-98 & B-0068-08) which prohibit such a deduction, an article written by Ed Eshoo and a paper I have written on the topic.

The Colorado Department of Insurance has extended the filing of public comments until February 15, and you can file a comment through the following link:

(Note: see our post, Colorado Not Replacing Contractor Overhead and Profit Bulletin)

Quote For The Day

Policy is no longer being written by politicians accountable to the American public. Instead, policies concerning the defense budget, deregulation, health care, public transportation, job training programs, and a host of other crucial areas are now largely written by lobbyists who represent mega corporations.
—Henry Giroux