A decade-old legislative fix in Colorado has unintentionally dismantled parts of the state’s construction insurance market, creating a ripple effect that's left builders increasingly exposed, according to industry professionals.

“I think Colorado has been on the brink of an insurance crisis since 2010,” said Stephanie Beninati, an independent insurance broker serving the construction industry.

Beninati traces the problem back to House Bill 1394, passed in response to a 2009 court decision that permitted insurers to reject coverage for certain construction defect claims. The bill aimed to restore protections for contractors by reclassifying such defects—even those tied to poor workmanship—as accidental occurrences, thereby compelling insurers to cover them under general liability policies.

But the law also had a chilling effect.

“If somebody built a house in 2010 and then changed carriers in 2011 or 2012, all the carriers could be forced to respond to a single defect claim,” Beninati explained. “Of course, insurance carriers didn’t like that; we saw a complete pullback.”

Critics warned that the legislation, which applied retroactively, could drive insurers out of the market. And that’s exactly what happened. Over the years, many carriers either exited Colorado or significantly scaled back their offerings, shrinking options for builders and inflating costs.

As traditional policies disappeared, builders increasingly turned to the excess and surplus (E&S) market, which offers narrower protections at higher premiums.

“Technically, excess and surplus is more money, less coverages,” Beninati said. “And now it’s getting worse.”

Beninati believes the crisis is compounded by a lack of awareness across the industry. Many contractors and even insurance agents, she said, don’t fully understand the extent of the shift.

“Maybe there’s a small percentage of them that fully understand what’s happening. I know my clients do, because I’m constantly talking to them about it. But in general? That’s the problem,” she said.

“Almost 90% of the time, they don’t know what’s going on,” Beninati added. “I have to work with the agent to explain it.”

In response, her firm has developed a custom certificate verification system to track subcontractor insurance policies and ensure coverage matches the type of work performed. She’s also introduced risk management tools, including standardized agreements and homeowner forms, to reduce liability and improve insurer confidence.

“I feel like if I can create a more dynamic risk management plan for them, then I can go to the carriers and strike a bargain,” Beninati said.

Though the market hasn’t fully embraced her approach yet, she’s staying the course.

“They don’t seem to understand, but I know it will change, and that’s why I’m doing all this work ahead of time,” she said.

Beninati also sees technology as a key differentiator for brokers navigating a volatile insurance landscape. She’s implemented artificial intelligence into her firm’s backend systems to streamline operations and mitigate staffing disruptions.

Still, she’s cautious about how quickly AI is being introduced in underwriting and claims.

“There were guardrails on AI and its rollout, and in this administration, there are none,” she said. “My concern is that companies could implement it faster than anyone’s ready for.”

Ultimately, she believes the burden of adaptation falls on brokers—not underwriters or carriers.

“I feel like it’s our job to protect our clients,” Beninati said. “We can’t expect the wholesale brokers and the carriers to protect us. It’s not going to happen; the system isn’t set up for that.”

Originally reported by Bryony Garlick in Insurance Business.