As many of you know or are going to find out if you haven't already, insurance premiums are increasing significantly. More importantly, many companies are not renewing or writing new business in certain areas, leaving people scrambling to find insurance for their home. Lastly, many insurance companies are pulling out of New Mexico, especially those that write commercial or business insurance. It is making it very difficult for individuals and businesses.

Part of the reason for premium increases, especially in the personal auto and homeowner segment is inflation. Automobile repair costs and home construction costs have skyrocketed in the last two years. On average automobile parts and construction materials are 39% more expensive today than they were in April of 2022.

When insurance companies set rates for the upcoming year, they have to make an educated guess as to what costs will be to repair automobiles or homes. No one anticipated inflation would be this bad or last this long. Insurance companies then have to go back and factor that into future rates, while trying to anticipate what inflation will do over the next 6 to 12 months.

Because of recent fire activity in New Mexico, many companies have restricted writing business or renewing policies in certain areas that they deem to be prone to wildfires and catastrophic losses. Some companies are sending representatives to inspect property and make required changes, often cutting down trees, in order to renew their homeowner's policy. While some of the recommendations make sense, others do not. But when companies are struggling to remain solvent and limit exposure, they can often go overboard.

Another issue creating problems in New Mexico, especially for those in the restaurant industry, is the inability to get adequate liquor liability coverage. Several companies that have issued policies in the past for clients I represent, have completely pulled out of New Mexico and are no longer offering policies here. The premiums for those policies that are available are almost prohibitive for a small business owner. Chain restaurants don't face the same issues because their corporate parent can purchase a large blanket policy to cover many locations throughout the country.

A principle of insurance is spreading the risk between a large number of similar insurance risks. The law of large numbers means that the more entities you insure, the more accurate your predictions are and the easier it is to keep premium rates down. Because New Mexico is a sparsely populated state, we don't get the benefit of a more populated state such as California or even Arizona.
I don't even want to get started on what I think is one of the most egregious drivers of increasing premiums or companies leaving New Mexico; litigation.

The TV attorneys and even the 'legitimate' attorneys that represent injured parties have created a system in New Mexico that makes it almost impossible to defend anyone. They will regularly file a lawsuit against anyone that might even be remotely responsible for damages to someone, which requires that person to hire attorneys to defend themselves and even if they're not required to pay any settlement they have already spent 10s of thousands of dollars in attorney's fees.
The plaintiff attorneys are smart enough to make an allegation that would trigger the insurance to pay the cost any judgment. Many companies, even though they do not believe their client is liable for any damages, will pay a nuisance settlement to save on defense costs. You and I end up paying for those settlements in our insurance premium.

What is the answer? Like many issues, there are multiple causes and probably multiple solutions. But in my estimation, having been in insurance since 1988 in both the claims litigation and agency roles, allow insurance companies to write business across state lines. Allow them to combine New Mexico's homeowners' business with that of Arizona or Colorado. That would spread the risk.

Tort reform would be another solution. Enforce the laws that require the losing party to pay the attorney's fees of the prevailing parties. Too often, because insurance companies are paying the attorneys, judges do not award fees. Doing so would not only allow companies to recoup our money but would also deter frivolous lawsuits. I have long said that any attorney who takes a case on a contingency fee should be responsible for a corresponding percentage of the prevailing parties attorney's fees if they lose their case.

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