A screenshot of a webcam showing downtown Ruidoso around 8:30 p.m. on June 17 as the South Fork Fire looms and drivers flee. The state’s insurance regulator says SB81 will make it easier to rebuild in Ruidoso and across the state, while also helping the private market stay healthy. (Photo Courtesy Village of Ruidoso)
As New Mexico becomes increasingly prone to wildfire, home insurance companies in New Mexico are jacking up premiums or canceling policies. Lawmakers and the state’s insurance regulator are mulling multiple proposals that aim to mitigate wildfire risk and help New Mexicans get enough coverage to protect what is, for many, their only asset.
As part of the New Mexico FAIR Plan Act passed in 1969, applicants insurance companies reject can get coverage through the Fair Access to Insurance Requirements plan, which officials refer to as the insurer of last resort. Even though the Legislature passed the act creating the FAIR plan, the board drafting the plan’s coverage limits is composed of insurance industry executives who meet behind closed doors.
The board has not increased coverage limits much despite rising home construction costs and an increase in wildfires, including the 2022 Hermits Peak/Calf Canyon wildfire, the largest in state history, and the South Fork and Salt Fires last summer, the most destructive.
Senate Bill 81 seeks to increase coverage limits to $1 million for homes, revamp the FAIR Plan board to include more than just industry experts and possibly even use up to $50 million of taxpayer dollars to give the expanded FAIR plan a backstop before it becomes solvent.
Some of that money would also be for property mitigation, offering grants to households and communities to reduce the threat of catastrophic fire in their neighborhoods. Types of mitigation include building a buffer between homes and forests, clearing pine needles, using fire-resistant building materials and adding sprinklers.
Other bills this session aim to improve the health of the state’s forests and provide mitigation grants. Gov. Michelle Lujan Grisham also touted in the State of the State a proposal to provide fire insurance to every New Mexican who needs it. However, her office has not responded to Source New Mexico’s requests for the bill since the legislative filing deadline last week, and no bill introduced appears to match the description of her policy.
Source New Mexico sat down with Timothy Vigil, the deputy superintendent of insurance, on Tuesday to discuss the office’s priorities during the session, including SB81. The following interview has been edited for length and clarity.
An actuary at your office recently testified at the Legislature that the state’s top 10 insurers have increased premiums 60% on average since 2022. Insurers are also increasingly refusing to renew policies or canceling them. Can you tell us what will happen if the Legislature does nothing this session?
If the Legislature does nothing, we do have some risk, and we’re hoping that this is being addressed right now: of insurants not having an avenue to get insurance for their property.
Because this is such a fast-moving problem with climate shifts and things like that, we really need to have people that are very much tuned in to those —such as somebody who has catastrophic event experience on the FAIR Plan Board, somebody who’s an actuary, somebody who has a background in finance. So we have a number of things we would like to improve. That way, we don’t run into trouble that other states have run into. We go out and we start to investigate: Why did this state have this problem and how can we avoid that? So those are some of the things that we’re trying to do.
After the South Fork and Salt fires in Ruidoso last summer, policyholders with the state’s FAIR Plan made claims for more money than the plan had raised in premiums. What happened next?
If you have a big event, a fire, and the claims exceed the premium dollars that you have collected, then what happens under a FAIR plan is you go to all the insurers in the state, and they assess each insurer for either the shortfall or more if they want to have a reserve. So what we think happened with South Fork and Salt Fire is the claims came in, they exceeded the funds that the FAIR Plan Board had collected, so they had to go out and do some assessments.
Did the insurers then pass that $8 million assessment on to policyholders elsewhere in the state?
I imagine they did, yeah. What our bill does is, if there is a big assessment, it allows for a surcharge. It allows, if they go out and they assess, they can surcharge the customers throughout the state over a three-year period so they can get those funds back from policyholders.
How do you respond to climate advocacy groups that say that provision is a giveaway to insurance companies?
We looked at other FAIR plans. I think they all work the same. We’ve given a little bit of relief to the consumer because we say, ‘Surcharge that consumer over a three-year period, don’t do an immediate recapture.’ The bottom line is, we want our consumers to be protected as best as we can and we’re trying to model things based on what we’re seeing in other states and what has worked and has not worked. I don’t think our thought process has ever been, ‘let’s cozy up to industry,’ but it’s not to be antagonistic either, right? We’re all in this together, and we all need to work on it and come up with solutions, because if we don’t, we have consumers that are just going to be having some rough times, losing properties that may be their only asset.
Is there a risk you’ll chase insurers out of the state with some of these policies? Is that something you have to keep in mind?
We always keep that in mind. And again, the goal is not to chase anybody out. The goal is to create this healthy market. The FAIR Plan itself is that coverage of last resort. Our bill says if you are rejected three times, then we take you in, but we are trying to nudge you back into the market.
How are you helping people return to the private market?
One is, we’re encouraging mitigation. And this isn’t just a kind of a haphazard approach. There are tools. There are entities out there that have really studied the mitigation process, and they have a program that is in place that can help you, as a property owner, mitigate your property, and you can get a certificate. We’re hoping that that certification helps you get back into the private market, because our hope is the insurer will take that into account.
The fiscal impact report on SB 81 predicts that the number of FAIR plan policy holders will increase from about 1,500 to about 4,100 if the policy is enacted over the next couple years. Is there a risk that so many people will sign up eventually you’ll just have a high-risk pool and the state will be on the hook to subsidize this plan for the foreseeable future?
“The state, the way the model has been built, will not be on the hook. All of this will be through assessments. If there is a big event, and then if there is a concentration of policies within the big event, and there’s the shortfall and premium dollars haven’t been collected sufficiently to cover it, then that just goes to an assessment. So it doesn’t flow backwards to the state.
Some of the recent hearing on SB 81 centered on what the FAIR Plan Board did or didn’t do in the wake of the South Fork and Salt fires and whether they’ve responded to your office’s push to increase coverage limits. The board met last week. Do you know what they did at that meeting and whether that will affect the legislation going forward?
They’ve made a proposal. We’re still evaluating the proposal, and there’s some components we have questions on. Also, we are very interested in making sure we have expertise in certain areas on the board, because of these huge changes in liability and in climate shifts. Because of that, we really need to make sure that whoever is sitting on the board has a lot of that information that they can share, and really analyze what we’re doing with premiums and coverages and all of that stuff. So right now we’re looking at what the proposal is, and we do have some questions that we’d like to pose, and we still need the legislation to continue its process, because it does have some other things in there that we’d really like to make sure are part of it.
Is the Fair Plan Board’s proposal public?
I don’t know.
Why isn’t that board’s meeting subject to the Open Meetings Act?
Statute.
And does your proposed reform make FAIR Plan board meetings public?
No, not yet.
Why Not?
I don’t know. That is a wonderful question.