New Mexico Homeowners Insurance

New Mexico Property Risk Environment

New Mexico's unique geography and climate create specific property insurance challenges that producers must understand.

Key Risk Factors

Regional Considerations

Northern New Mexico (Santa Fe, Taos, Los Alamos):

• High wildfire risk in forested areas
• Elevated construction costs
• Historic adobe construction challenges
• Heavy snow loads in winter

Central New Mexico (Albuquerque, Rio Rancho):

• Hail and wind damage
• Urban density and fire protection
• Varied construction types
• Higher property values

Southern New Mexico (Las Cruces, Roswell, Carlsbad):

• Wind and dust storms
• Extreme heat exposure
• Agricultural/rural properties
• Lower property values generally

Eastern Plains (Clovis, Portales):

• Severe hail risk
• Tornado potential
• Rural/ranch properties
• Limited fire protection

Exam Tip: Know that wildfire is New Mexico's primary property insurance concern, especially in the wildland-urban interface where homes adjoin forests and grasslands.

ISO Homeowners Policy Forms

New Mexico insurers typically use ISO (Insurance Services Office) standardized policy forms with state-specific endorsements.

Common New Mexico Homeowners Forms

HO-3 Special Form (Most Common)

The HO-3 policy provides:

Coverage A - Dwelling: Open Peril (all-risk) coverage

• Covers all perils EXCEPT those specifically excluded
• Most comprehensive dwelling protection
• Includes attached structures (garage, deck)

Coverage B - Other Structures: Open Peril

• Detached structures (shed, fence, detached garage)
• Limited to 10% of Coverage A (can be increased)

Coverage C - Personal Property: Named Peril only

• 16 named perils (fire, theft, wind, etc.)
• Default limit: 50% to 75% of Coverage A
• Can be upgraded to open peril with endorsement

Coverage D - Loss of Use: Open Peril basis

• Additional living expenses during repairs
• Typically 20% to 30% of Coverage A
• Covers hotel, meals, temporary housing

Coverage E - Personal Liability: $100,000 to $500,000 typical

• Protects against lawsuits for bodily injury or property damage
• Defense costs included
• No deductible applies

Coverage F - Medical Payments to Others: $1,000 to $5,000 typical

• No-fault medical expense coverage for guests
• No deductible applies
• Not for residents of household

HO-3 Standard Exclusions

The HO-3 excludes certain perils and losses:

Major Exclusions:

• Flood - Requires separate NFIP or private flood policy
• Earth Movement - Earthquake, landslide, sinkholes (earthquake coverage available by endorsement)
• Water Backup - Sewer or drain backup (available by endorsement)
• Neglect - Failure to protect property after loss
• War - War, nuclear hazard
• Intentional Loss - Caused deliberately by insured
• Power Failure - Off-premises power interruption
• Ordinance or Law - Costs to comply with building codes (available by endorsement)

New Mexico Wildfire Note: Wildfire IS covered under HO-3 as an open peril. However, homes in high-risk wildfire zones may face coverage limitations, higher premiums, or require FAIR Plan coverage.

New Mexico-Specific Policy Provisions

Wildfire Coverage and Limitations

Voluntary Market Challenges:

• Many insurers restrict coverage in high wildfire hazard zones
• Some insurers require wildfire mitigation measures:
  • Defensible space (30+ feet of cleared vegetation)
  • Fire-resistant roofing materials
  • Spark arrestors on chimneys
  • Non-combustible siding materials

Insurer Actions in High-Risk Areas:

• May non-renew existing policies
• Require inspections before binding
• Impose higher deductibles for fire losses
• Limit Coverage A amounts
• Require brush clearance certification

Hail Damage Provisions

New Mexico Hail Considerations:

• Separate wind/hail deductibles common
• Percentage deductibles (1% to 5% of Coverage A) in hail-prone areas
• Roof surface replacement limitations:
  • Actual cash value only for roofs 10+ years old
  • Matching endorsements for partial roof replacement
  • Cosmetic damage exclusions

Adobe and Historic Construction

Special Considerations:

• Many northern NM homes are adobe or historic construction
• Replacement cost may exceed market value
• May require specialized coverage or HO-8 Modified Coverage form
• Limited contractor availability for repairs
• Building code upgrades may be required (need Ordinance or Law coverage)

Drought-Related Foundation Movement

Coverage Issues:

• Foundation cracking due to drought-related soil movement
• Often excluded as "earth movement"
• May be gradual deterioration (excluded)
• Homeowners often dispute whether covered

Producer Tip: Explain to New Mexico clients that foundation issues related to soil expansion/contraction are typically NOT covered under standard homeowners policies. This is a common claims dispute.

Required Disclosures in New Mexico

Point-of-Sale Disclosures

New Mexico requires producers to disclose to homeowners at point of sale:

Required Disclosures:

1. Coverage Limits - Amount of Coverage A, B, C, D, E, F
2. Deductible - Amount insured pays out-of-pocket
3. Exclusions - Major coverages NOT included (flood, earthquake, etc.)
4. Replacement Cost vs. ACV - Valuation method for property
5. Additional Coverages Available - Endorsements that can be added
6. Premium Factors - What affects premium calculations

Flood Insurance Disclosure

Federal Requirement (applies in NM):

• If property in Special Flood Hazard Area (SFHA), lender requires flood insurance
• Producer should inform client that flood is NOT covered by homeowners policy
• Recommend NFIP (National Flood Insurance Program) quote
• Many NM properties near arroyos or in floodplains

Earthquake Coverage Disclosure

New Mexico Consideration:

• While not as seismically active as California, earthquake risk exists
• Standard HO policies exclude earthquake
• Earthquake endorsement available from most insurers
• Producer should offer earthquake coverage option, especially in Rio Grande Rift zone

New Mexico FAIR Plan

Purpose and Structure

The New Mexico Property Insurance Plan (FAIR Plan) is a state-mandated residual market mechanism that:

• Provides basic property insurance for high-risk properties
• Serves as "insurer of last resort"
• Required when voluntary market coverage unavailable
• Funded by assessments on all property insurers in New Mexico

Eligibility Requirements

Who Can Apply:

• Property owners unable to obtain coverage from at least 2 voluntary market insurers
• Must have written proof of declinations
• Property must be insurable condition (not dilapidated)
• Must meet minimum fire protection standards

Ineligible Properties:

• Properties declined due to poor condition or maintenance
• Vacant or unoccupied buildings (with some exceptions)
• Properties with outstanding code violations
• Properties with prior losses not repaired

Coverage Provided

FAIR Plan Coverages:

• Fire and Extended Coverage perils
• Vandalism and Malicious Mischief
• Basic property coverages only (not comprehensive)
• Limits up to $500,000 for dwellings (varies)

What FAIR Plan Does NOT Cover:

• Liability coverage (must be obtained separately)
• Theft (limited or excluded)
• Full open peril coverage
• Extended coverages available in voluntary market

Application Process

Steps to Obtain FAIR Plan Coverage:

1. Apply to voluntary market insurers (at least 2)
2. Receive declinations in writing
3. Apply to FAIR Plan with declination notices
4. Property inspection conducted
5. Meet eligibility requirements (fire protection, property condition)
6. Policy issued if approved

Premiums

FAIR Plan Premiums:

• Generally higher than voluntary market (reflecting higher risk)
• Based on property location, construction, fire protection
• No subsidies or discounts typically available
• Annual policies with standard payment terms

Producer Responsibility: Help clients understand FAIR Plan is basic coverage and they should supplement with separate liability policy and consider additional coverages.

Homeowners Coverage Endorsements

Common endorsements in New Mexico:

Recommended New Mexico Endorsements

Wildfire Mitigation Endorsements

Some insurers offer premium discounts or enhanced coverage for:

• Homes with defensible space (cleared vegetation)
• Fire-resistant roofing (Class A rated)
• Non-combustible siding materials
• Homes in Fire-Adapted Communities
• Installation of fire suppression systems

Marketing Opportunity: Help New Mexico clients reduce premiums by implementing wildfire mitigation measures recognized by insurers.

Replacement Cost vs. Actual Cash Value

Valuation Methods

Replacement Cost (RC):

• Cost to replace damaged property with new property of like kind and quality
• No deduction for depreciation
• Higher premiums
• Most common for dwelling coverage
• May be subject to replacement cost settlement conditions

Actual Cash Value (ACV):

• Replacement cost MINUS depreciation
• Lower premiums
• Common for older roofs (10+ years)
• May be only option for older homes
• Used in HO-8 policies

Replacement Cost Settlement

Typical Requirements:

1. Insurer pays ACV initially when claim filed
2. Insured repairs or replaces damaged property
3. Insurer pays additional amount (up to RC) after work completed
4. Must complete within 180 days to 2 years (policy-specific)

Replacement Cost Coverage Does NOT Mean:

• Insurer pays more than Coverage A limit
• Insurer pays to upgrade to better materials (unless required by code with Ordinance or Law coverage)
• Depreciation never applies (still applies to personal property unless endorsed)

Underwriting Considerations in New Mexico

Factors Affecting Homeowners Premiums

Fire Protection Class (FPC)

ISO's Public Protection Classification (PPC):

• Rates fire protection on scale of 1-10
• Class 1 = best fire protection
• Class 10 = no recognized fire protection
• Based on: water supply, fire department, emergency communications

New Mexico Rural Challenges:

• Many rural areas are Class 9 or 10
• Significantly higher premiums in poor FPC areas
• Some insurers won't write in Class 9-10 areas
• Volunteer fire departments may limit response capability

Exam Tip: Know that distance to fire station and water supply (fire hydrants) significantly affect homeowners insurance rates in New Mexico, especially in rural areas.

Claims Handling Requirements

Prompt Payment Requirements

New Mexico requires insurers to:

• Acknowledge claims within a reasonable time (typically 15 days)
• Begin investigation promptly
• Pay undisputed amounts within 60 days of proof of loss
• Provide written explanation if denying or delaying claim

Producer's Role in Claims

Producers should:

• Assist insured in reporting claim promptly to insurer
• Explain claims process and what to expect
• Help document damage (photos, inventory)
• Review coverage applicable to loss
• Advocate for insured if disputes arise
• NOT make coverage determinations (that's insurer's role)

Bad Faith Claims

New Mexico recognizes bad faith claims when insurers:

• Unreasonably deny valid claims
• Fail to investigate properly
• Delay payment without justification
• Misrepresent policy provisions
• Fail to settle claims in good faith

Producer's Caution: Never advise insured on bad faith claims—refer to attorney. However, help insured document interactions with insurer.