New Mexico Faces Insurance Crisis as Wildfires Prompt Coverage Cancellations

According to Kunm, The New Mexico Office of Superintendent of Insurance is witnessing a significant rise in insurance providers canceling or refusing to renew coverage plans for homes located in areas prone to wildfires.

During a meeting with the Legislative Finance Committee in Ruidoso—a town still recovering from the effects of severe wildfires and subsequent flooding earlier this year—state agencies discussed the reasons behind insurers’ reluctance and emphasized the importance of fire prevention to maintain property insurance coverage.

Committee chair Sen. George K. Muñoz (D-Gallup) shared his personal challenges in securing insurance coverage, revealing, “I got denied on a commercial property in the middle of Gallup next to a fire hydrant because of wildfires.” Muñoz’s experience is not unique, as large portions of New Mexico are classified as “at risk” for wildfires.

The growing trend of insurance cancellations and non-renewals can have both immediate and long-term repercussions. For instance, mortgage lenders typically require homeowners to have insurance, so losing access to coverage could worsen the state’s ongoing housing affordability crisis.

Deputy Superintendent of Insurance Colin Baillio informed lawmakers that insurers are increasingly wary of the financial burdens associated with wildfires and the flooding that often follows in burn-scarred areas. He noted that in 2023, the U.S. property and casualty insurance industry paid out $21.2 billion more than it collected in premiums, largely due to extreme weather events.

Baillio pointed out that many rural communities in New Mexico are situated on the border between developed and undeveloped land, known as “urban wildland interfaces.” With a significant percentage of the state’s housing units—estimated between 60% and 82.6%—located in these high-risk areas, the situation is particularly concerning.

The Insurance Institute for Business & Home Safety is currently working on updating building codes specifically designed for new construction in wildfire-prone areas. However, climate change is exacerbating the frequency and intensity of wildfires, adding another layer of complexity to the issue.

“As insurance regulators, our tools to address the changing external conditions are limited,” Baillio stated, highlighting the importance of turning to risk mitigation efforts.

State Forester Laura McCarthy from the Energy, Minerals, and Natural Resources Department identified a lack of funding as a major barrier to enhancing wildfire suppression efforts. She explained that the state does not proactively budget for these initiatives, aside from covering some personnel salaries. Instead, New Mexico relies on emergency funding through executive orders from the governor’s office, each capped at $750,000.

McCarthy urged lawmakers to allocate more funds for wildfire mitigation before disasters occur, arguing that doing so could bolster insurers’ confidence in the state.

While some private sector insurers are withdrawing from certain areas, homeowners do have a fallback option: New Mexico’s FAIR (Fair Access to Insurance Requirements) plan. This state insurer of last resort offers coverage at typically higher rates. However, if the number of policyholders continues to grow, these plans may become economically unsustainable.