Fires making home insurance unaffordable, impossible, NM lawmakers say

Rep. Harlan Vincent (R-Ruidoso Downs) asks questions of a panel at the Legislative Finance interim committee in Mescalero. (Danielle Prokop / Source NM)

At a hotel surrounded by fresh burn scars, New Mexico lawmakers and insurance regulators described a bleak and uncertain future for prospective homeowners seeking adequate coverage for homes built in and around increasingly fire-prone forests.

The interim Legislative Finance Committee meeting at the Inn of the Mountain Gods in Mescalero on Tuesday comes shortly after the state’s Office of the Superintendent of Insurance lost a lawsuit against State Farm, New Mexico’s largest insurer. The state accused the company of improperly denying some claims for losses caused by the South Fork and Salt fires in the Ruidoso area.

The office circulated a handout showing some counties saw huge increases in home insurance premiums between 2020 and 2023, ranging between 41% and 47% in Hidalgo, Roosevelt and Curry counties. On average, New Mexico premiums increased by 16% in the same time period, and the average annual premium is $1,817.

Since recent wildfires, the office has also noticed an increase in insurers refusing to renew or approve policies in higher-risk areas, said OSI Deputy Secretary Colin Baillio.

“We recognize losing that financial protection as a homeowner or as a business owner is a huge issue for that individual, and it needs to be addressed on that basis,” he told lawmakers. “But it also has the potential for huge ripple effects.”

Wildfire risk is causing an insurance bubble in New Mexico

Those effects include killing jobs for realtors and homebuilders, harming economic development, and making home ownership extremely difficult for entire communities, including popular mountain towns like Ruidoso, he said.

But regulators’ hands are tied when it comes to cracking down on insurance companies who refuse to offer policies, Baillio said. As a result, his office is focusing on reducing risk to reassure insurers that they can still operate in New Mexico.

He’s pushing for risk reduction measures that could include urging individual homeowners to create defensible space around their homes and adopting community-wide improvements — efforts that he described as “lowering risks in a way that the insurance industry recognizes.”

Despite the uptick in cancellations and non-renewals, insurance companies remain largely profitable in New Mexico, according to OSI. Still, insurers here did have losses in 2016, 2017 and 2022, which is the year the two biggest wildfires in state history occurred.

Nationally, insurers have paid out more in claims than they received in premiums over the last decade, the OSI reports.

The South Fork and Salt fires destroyed or badly damaged more than 1,100 homes, including about 230 lost in post-fire flooding. About one-third of those were primary residences, and roughly 10% of the 1,100 households did not have adequate insurance, based on recent estimates from the Federal Emergency Management Agency for how many people are eligible for temporary federal housing. (Only those who are uninsured and lost their primary residence qualify for temporary housing in FEMA trailers or mobile homes.)

Rep. Harlan Vincent (R-Ruidoso Downs) said many of his constituents will be unable to get insurance on any new home, even if they manage to rebuild.

“I’ve got plenty of friends that’s in the insurance business. I’m not trying to get the state to compete against them,” he said. “But what do we do with our New Mexicans, especially in an area that’s been devastated, that want to come home, that want to rebuild?”

The state does offer insurance, known as the Fair Access to Insurance Requirements plan, but it is a “last resort with minimal coverage” for owner- and tenant-occupied homes and commercial structures, according to OSI.

The maximum coverage available is $350 thousand for homes, and it only covers the actual cash value, not the replacement cost, of a home that is lost. That means lenders won’t provide mortgages for people carrying those plans, lawmakers said.

Baillio said the OSI is working on being “creative” with making changes to FAIR plans to convince lenders to provide mortgages to people in fire-prone areas. That could mean increasing policy limits and covering replacement value.

“We’re in the same boat as you,” Baillio told Vincent. “If we can do this through the competitive market, that’s the way to go, but we’ve got to have a backup plan if that doesn’t get us there.”