Business Insurance in New Mexico: Everything You Need to Know
New Mexico has always been a popular destination for business owners looking to start a new venture or relocate their company. The state’s affordable real estate opportunities and favorable tax climates are just two of the factors that make this Southwest state an ideal local for a variety of organizations across industries.
Did You Know: Small businesses make up 99% of all companies in the state today, with a whopping 161,921 in operation.
Despite the promising economic landscape, businesses setting roots in New Mexico should be aware of the few factors that make insuring an organization in this state unique. Here, we break down the three most significant factors and uncover how they impact commercial insurance rates.
3 Factors That Might Impact Your Business Insurance in New Mexico
Factor #1: Wildfires
Wildfires are considered one of the most significant risks for commercial and residential properties in New Mexico. The Bureau of Land Management reports that, on average, the state engages in managing 300 wildfires per year, which have caused over $176 million worth of property damage between 2018 and 2022 alone.
As such, when an insurance carrier examines a New Mexico business to determine its rate, they must consider how likely it is that the business will experience a fire and what that damage might look like in terms of cost to rebuild.
To determine this risk, insurers weigh a business location’s wildfire scoring (i.e. the likelihood they will experience a wildfire) against their property protection class (which measures how well the property is protected.) Businesses with higher wildfire scores and property protection classes will likely experience higher insurance rates, as their risk of damage is much higher.
How to Manage Wildfires’ Impact on Business Insurance in New Mexico
The key to keeping commercial property insurance rates low in New Mexico is to keep this insurance scoring system top-of-mind when choosing where to operate your business.
Business owners committed to relocating to reduce costs can research the wildfire risk indexes across New Mexico to determine where the least at-risk locations are and can look into property protection classes in each area by searching a zip code alongside the phrase “protection class code lookup by address.”
They can also keep an eye out for how close the properties they’re considering for their business are to the nearest fire departments and how many fire hydrants are in the immediate area, as both factors help determine a building’s property protection class.
Business owners who can’t relocate should focus on managing the one aspect of their property protection class ranking not determined by the state.
“In wildfire scoring, one of the things that comes into consideration is how much blank space you have around your commercial building,” says Stefanie James, Central’s New Mexico Territory Sales Manager. “This is called clear defensible space, and your insurer will want you to have a fair amount of it whenever possible.”
Your business’ location to other buildings, how much brush and trees are on the property, and if there are any trash or combustible items housed outside of the structure can all impact the amount of clear defensible space your property has. Eliminating some of these factors can help increase a structure’s clear defensible space, improve the property’s protection class, lower the impact of a wildfire risk, and potentially lower commercial property insurance rates.
Factor #2: Historic Property Construction Requirements
Alongside wildfires, the construction requirements of many commercial buildings in New Mexico are a top consideration for insurers when determining rates.
“We have a lot of very traditional construction here in New Mexico,” James says. “We have buildings that have been here for 200 years. So, if you’re going to build a house or a commercial building, a lot of the cities have very strict requirements on how it’s built, what it’s going to look like, and the type of materials used.”
Traditionally, structures in cities like Santa Fe are built with mud materials, have exposed beams rather than sheetrock, and don’t exceed a certain number of stories to not interfere with the local mountains.
“These requirements impact the price of commercial properties,” James continues, “because a building in Albuquerque might be $850,000, whereas that same building in Santa Fe might cost $1.2 million because there will have to be modifications made to match local building ordinances.”
When it comes to insurance, the cost to rebuild a business’ physical structure in the case of a loss is a significant factor in determining the rate. The strict guidelines in cities like Santa Fe increase those rebuilding costs, which can increase the monthly premium a commercial policyholder pays for coverage.
As a result, businesses hoping to manage this added risk might consider occupying a property in a less historic area of New Mexico or leasing a property so they don’t have to incur those risks themselves.
Factor #3: Lessor’s Risk Only Restrictions on Certain Industries
Business owners who primarily operate through the purchase and leasing of real estate to multiple occupancies should be aware certain federal or state restrictions have the potential to impact their property’s insurability.
One example of these restrictions is the federal vs. state regulations on businesses that grow or sell recreational cannabis. Although New Mexico recently legalized the recreational use of the drug, federal restrictions prevent many carriers from insuring dispensaries.
“Most standard insurance companies with money in the federal marketplace won’t be allowed to touch it because of the federal guidelines against cannabis,” James says.
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While this might seem like a niche problem for a very specific industry, she explains that if an individual or company purchases a strip mall, for instance, with a dispensary in it, they will have a hard time finding coverage for their entire property.
These limitations are due to the Lessor’s Risk Only restrictions within New Mexico. “Normally, if you’re a business owner and own your building, your building is classed [by insurance companies] with your business,” James says. “But if you’re a building owner and you don’t occupy the building, the building class is the lessor’s risk only, meaning the risk is to the lessor of the building itself, so the insurance company doesn’t have to worry about the liability of the tenant, as the tenant is responsible for that.”
Keep in Mind: Lessor’s risk only policies are the same in all states, whether they’re covering an office, retail, or mixed-use building. The difference here is that if a business is an LRO property, many carriers can’t write it, as they are limited by their reinsurance treaties since cannabis violates federal statues. This is what causes most issues for property owners in the state.
“We’ve had to stop insuring a lot of commercial property we’ve covered for years and years because of the state’s recent legalization of marijuana combined with the lessor’s risk only policies,” James says. “Whether you’re a dispensary looking for coverage or a real estate business looking to insure multiple commercial properties, it’s important to be informed about these limitations and how they will impact your insurability.”
Insuring Your Business with Central
One of the simplest ways to stay on top of state-specific trends and reduce your rates is to work closely with a qualified insurance agent.
At Central, we work with only a small group of hand-selected, local insurance agents known for delivering best-in-class service to our policyholders. They are focused day in and day out on helping business owners navigate the ever-evolving landscape of commercial insurance and are immersed in their communities.
For that reason, whether you’re opening a new small business, relocating to New Mexico, or simply looking to understand your commercial rates better, your agent will be your best source of advice and insight.
Get in touch with them today to begin exploring your options, and in the meantime, feel free to follow Central on social media and our blog for the best tips, news, and expert advice on insuring your business in New Mexico.
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