The New Mexico Office of Superintendent of Insurances is seeing a substantial increase in insurance providers canceling or not renewing coverage plans for homes in wildfire-prone areas.
State agencies told the Legislative Finance Committee Tuesday about why insurers are getting cold feet in New Mexico and how fire prevention efforts are key to keeping properties insured. The committee met in Ruidoso, which is still recovering from devastating wildfires earlier this year and continued flooding.
Committee chair Sen. George K. Muñoz (D-Gallup) gave his personal experience trying to score coverage.
“I got denied on a commercial property in the middle of Gallup next to a fire hydrant because of wildfires.”
And he’s not alone. Large swaths of the state are labeled “at risk” for wildfires.
The increase in the loss of coverage can pose both short and long term effects. For example, lenders require insurance for mortgages, so not having access could exacerbate the housing affordability crisis.
Deputy Superintendent of Insurance Colin Baillio told lawmakers that insurers are becoming wary of costs related to wildfires and the subsequent flooding on burn scars.
The U.S. property and casualty industry paid out $21.2 billion more than it collected in insurance premiums last year, mostly due to extreme weather events.
He pointed to heightened risks, like many rural communities in New Mexico being built on the border between developed and undeveloped land, or “urban wildland interfaces.”
New Mexico boasts one of the largest populations of housing units in this area, ranging anywhere between 60 and 82.6% of its total housing.
The Insurance Institute for Business & Home Safety is working on updating building codes specifically meant for new construction in these areas.
Climate change is also increasing the occurrence and severity of wildfires.
“As insurance regulators, our tools to address the changing external conditions are limited,” said Baillio. “That’s why we are turning to risk mitigation efforts.”
State Forester Laura McCarthy with the Energy, Minerals and Natural Resources Department said one barrier to increasing wildfire suppression efforts is funding. She told lawmakers they do not proactively budget for that work, other than some personnel salaries.
Instead, McCarthy argued, the state relies on emergency funding through executive orders from the governor’s office – which is capped at $750,000 each.
McCarthy encouraged lawmakers to set more money aside for wildfire mitigation before a disaster hits, arguing that would help grow insurers’ confidence in New Mexico.
While private sector insurers may be pulling out of some areas, there is a fallback option for homeowners.
New Mexico’s FAIR, or “fair access to insurance requirements,” is a state insurer of last resort, which offers a typically more expensive rate. Though, these plans are notoriously known for being economically unfeasible if policy counts continue to rise.
