A building stands in the midst of the South Fork Fire Burn scar between Ruidoso and Alto, New Mexico on Aug. 20, 2024. More than 900 homes were lost in the June fires. (Danielle Prokop / Source NM)
As home insurance grows increasingly expensive and unavailable in some fire-prone areas of New Mexico, both Republican and Democratic lawmakers agree the market can’t provide adequate coverage to protect homes here against future disasters.
Lawmakers in both parties told Source New Mexico they are exploring different ways during the 60-day legislative session to allow the state to intervene. Options include: increasing coverage limits, along with premiums, in a state-operated insurance program; and investing as much as $100 million in that program to help it sustain itself for at least the next few big catastrophes.
Gov. Michelle Lujan Grisham also announced in her State of the State speech on Tuesday a proposal for a “state-sponsored fire insurance program outside the private market,” noting in her speech that, “No New Mexican should be priced out of a fire insurance policy.”
The governor’s proposal, still in its early stages, is to create a state-run fire insurance program outside of private markets and separate from the Fair Access to Insurance Requirements plan currently overseen by the state’s insurance regulator. Her office provided details to Source on Thursday afternoon.
Fires making home insurance unaffordable, impossible, NM lawmakers say
The governor’s proposal is necessary as “traditional private insurance becomes increasingly scarce and expensive, particularly due to the rising frequency and severity of wildfires,” said spokesperson Michael Coleman.
It would be structured as a not-for-profit program, similar to the state’s workers’ compensation fund, but with some key differences to account for the fact that disasters can affect thousands of properties all at once, Coleman said.
The plan would require initial state funding to establish adequate reserves, but the amount has not been determined yet, Coleman said, and the state would assume some “limited liability” to make the program viable. It would require property owners mitigate risk around their property to qualify for coverage, he said.
In the end, Coleman said the program would “provide coverage to any New Mexican who needs it.
Sen. Gabriel Ramos (R-Silver City) told Source on Thursday morning he was drafting a bill with the help of the state’s Office of the Superintendent of Insurance to increase the coverage limits offered under its Fair Access to Insurance Requirements plan. The FAIR plan is meant to be an insurer of last resort for people denied coverage in the private market.
Ramos, an insurance agent, said his own home insurance cost has tripled in the last several years, which he initially described in an interview as “gouging,” but later said was just a necessity for a struggling private company.
He said private insurers in his town have effectively drawn red lines that delineate where insurance will be unaffordable for most New Mexicans and where it won’t be offered at all. So the expanding state’s FAIR plan is necessary there and elsewhere in New Mexico, he said.
He is considering increasing the limits of residential coverage to $750,000 and $1 million in two tiers that depend on a home’s value and the rating of a local fire department’s capacity to respond to wildfires. The current program only covers $350,000, and it only covers the actual, not replacement, value of a lost home amid rising construction costs and home prices.
Ramos also is deliberating how much taxpayer money to infuse into the expanded program to keep it running, mentioning $50 million and $100 million as possibilities. He said the state’s intervention is necessary based on the sheer number of natural disasters that are overwhelming private insurers.
New Mexico agency seeks $50M boost to insurance program as finding private insurance gets harder
“Catastrophes are out of their control, and as a company, there’s only so much that they can withstand,” he said. “And when you’ve had as many catastrophes as we’ve had in the state of New Mexico, it’s really hard to actuary and figure out what the future is going to be.
According to the Office of the Superintendent of Insurance, some New Mexico 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.
Despite the increases in premiums, cancellations and non-renewals, insurance companies remain largely profitable in New Mexico, according to the state’s insurance regulator. Still, insurers here did have losses in 2016, 2017 and 2022—the latter the year when the two biggest wildfires in state history occurred—according to the OSI.
Sen. Peter Wirth (D-Santa Fe), the Senate majority leader, said in an interview before the session that Democrats will also propose legislation that would increase the amount of coverage for those whose only insurance option is the FAIR plan.
Wirth, who said many of his Santa Fe County constituents are losing insurance, said he was considering increasing the caps to $1.5 million to $2 million, with up to $5 million for commercial coverage.
“This is a really important thing for us, as we all kind of learn to live with the new normal,” Wirth said.
No bills had been introduced as of Thursday afternoon, apart from a mention in the proposed state budget released by the House Appropriations and Finance Committee.
If approved in legislation, the budget would include $49.5 million for a pilot program in Lincoln County, where the South Fork and Salt fires occurred last summer. The program would increase residential and commercial property limits in the county, so long as FAIR plan recipients take steps to mitigate fire risk to their homes inline with national standards.
Most NM ZIP codes saw insurance non-renewals about national average in 2022
The proposed legislation from various fronts comes a week after a first-of-its-kind study from the federal government examining what factors, including climate change risks, were affecting homeowners insurance markets across the country. The Federal Insurance Office released its study Jan. 16, five days before President Donald Trump was inaugurated.
The study analyzed markets across the country, collecting data down to the ZIP code level, between 2018 and 2022. It found, among other things, that premiums nationwide grew 8.7% faster than inflation during those four years, and 14.7% faster than inflation for those who lived in the highest-risk areas. Homeowners and insurers in areas with higher risk of “climate-related perils” were also more likely to have higher premiums and policy non-renewals, according to the study.
In addition to the rest of the country, the study looked at 200 of approximately 260 New Mexico ZIP codes. It found in 21 of those ZIP codes in 2022, private insurers paid out more in claims and other expenses than they generated in premiums, according to a Source New Mexico analysis.
In 2022, the state’s largest and second-largest wildfires in New Mexico history burned, each exceeding 300,000 acres. Across the 200 statewide ZIP codes the study analyzed, insurance companies chose not to renew policyholders’ insurance at a higher rate than the national average in 152 of them.
Source New Mexico reporter Danielle Prokop contributed reporting to this story.