As wildfires continue to ravage forests in New Mexico, the state is facing a growing crisis in the realm of home insurance coverage. At a recent Legislative Finance Committee meeting held at the Inn of the Mountain Gods in Mescalero, lawmakers and insurance regulators painted a grim picture of the challenges faced by prospective homeowners seeking adequate coverage for properties built in fire-prone areas.
The meeting took place shortly after the Office of the Superintendent of Insurance lost a lawsuit against State Farm, the state’s largest insurer, over claims denial related to the South Fork and Salt fires in the Ruidoso area. This legal battle highlighted the complexities and uncertainties surrounding insurance coverage for homes in regions affected by wildfires.
According to data presented at the meeting, some counties in New Mexico have seen significant increases in home insurance premiums, with rates rising by as much as 47% in certain areas between 2020 and 2023. The average annual premium in the state now stands at $1,817, reflecting a 16% increase over the same period. These escalating costs are making it increasingly difficult for homeowners to afford adequate insurance coverage.
In addition to rising premiums, insurers are increasingly refusing to renew or approve policies in high-risk areas, exacerbating the challenges faced by homeowners in these regions. Colin Baillio, Deputy Secretary of the Office of the Superintendent of Insurance, emphasized the far-reaching consequences of this trend, including job losses in the real estate and construction sectors, hindrances to economic development, and barriers to homeownership in communities like Ruidoso.
Despite the profitability of insurance companies in New Mexico, regulators are grappling with limited options to address the issue of insurers refusing to offer policies in high-risk areas. To mitigate risks and reassure insurers, the OSI is advocating for measures to reduce the likelihood of wildfires, such as creating defensible space around homes and implementing community-wide improvements.
The devastating impact of recent wildfires, such as the South Fork and Salt fires, has left many homeowners without adequate insurance coverage. Rep. Harlan Vincent expressed concerns about the inability of his constituents to obtain insurance for new homes, even if they manage to rebuild after a fire.
In response to these challenges, the state offers the Fair Access to Insurance Requirements (FAIR) plan as a last resort for homeowners and commercial property owners in fire-prone areas. However, this plan provides minimal coverage with a maximum limit of $350 thousand for homes and only covers the actual cash value, not the replacement cost, of a lost property. This limitation poses obstacles for individuals seeking mortgages for properties covered under the FAIR plan.
Baillio acknowledged the need for creative solutions to address these issues, including potential changes to the FAIR plan to increase policy limits and cover replacement value. While the preference is to rely on the competitive market for insurance coverage, having a backup plan in place is essential to ensure that homeowners in fire-prone areas have access to the protection they need.
In conclusion, the escalating wildfire risk in New Mexico is creating a challenging insurance landscape for homeowners in high-risk areas. As regulators and lawmakers work to address these issues, finding innovative solutions to ensure adequate coverage for properties in fire-prone regions will be crucial to protecting homeowners and communities from the devastating impacts of wildfires.