The New Mexico Office of Superintendent of Insurance is noticing a significant rise in insurance companies canceling or not renewing home insurance plans in areas prone to wildfires.
On Tuesday, state agencies explained to the Legislative Finance Committee why insurers are hesitant to provide coverage in New Mexico and emphasized the importance of fire prevention in keeping homes insured. The committee met in Ruidoso, a town still recovering from recent wildfires and floods.
Committee chair Sen. George K. Muñoz (D-Gallup) shared his own experience of being denied insurance on a commercial property in Gallup, despite it being next to a fire hydrant, due to wildfire risks. This issue affects many, as large parts of the state are considered at high risk for wildfires.
Losing insurance coverage can have serious consequences, both short and long term. For example, mortgages typically require insurance, so losing access to coverage could worsen the housing affordability crisis.
Deputy Superintendent of Insurance Colin Baillio informed lawmakers that insurers are growing concerned about the costs related to wildfires and the resulting flooding in burned areas. Last year, the U.S. property and casualty insurance industry paid out $21.2 billion more than it collected in premiums, mainly due to extreme weather events.
Baillio highlighted that many rural communities in New Mexico are located in areas where developed land meets undeveloped land, known as “urban wildland interfaces.” A large percentage of New Mexico’s housing is in these areas, which increases the risk of wildfire damage.
The Insurance Institute for Business & Home Safety is working on updating building codes for new construction in these high-risk areas. Climate change is also making wildfires more frequent and severe.
Baillio mentioned that as insurance regulators, their ability to address these external factors is limited, so they are focusing on risk mitigation efforts.
State Forester Laura McCarthy from the Energy, Minerals and Natural Resources Department stated that a lack of funding is a barrier to improving wildfire suppression. She explained that the state doesn’t proactively budget for this work and instead relies on emergency funds from the governor’s office, which are capped at $750,000 each.
McCarthy urged lawmakers to allocate more money for wildfire prevention before disasters occur, arguing that this could help restore insurers’ confidence in New Mexico.
For homeowners who lose their insurance, there is a last-resort option: New Mexico’s FAIR plan. However, this state insurer offers higher rates, and these plans are often considered economically unfeasible if too many people rely on them.