Hawaii State Insurance Commissioner and attorney Gordon Ito joins producer/host Coralie Chun Matayoshi to discuss what is causing home and condo property and hurricane insurance premiums and deductibles to skyrocket across the country, including Hawaii, the effect of the Maui wildfire, various bills considered during the past legislative session to address this insurance crisis, and what homeowners can do to reduce their risk of wildfire damage.
Q. It's hurricane season and insurance premiums and deductibles are going through the roof for home and condo owners. What is causing this increase?
Insurance rates have been increasing over the past several years across the nation. We are in an extremely “hard” insurance market where availability of insurance is limited, and costs have increased significantly. Catastrophe losses is a big reason for these increases. In 2023, there were 28 weather and climate related disasters in the U.S., each causing over $1 billion in losses and global warming will likely lead to the continued increase in the number and severity of disasters. The cost to insure homes is going up because of a surge in the cost of reinsurance, which is used by insurance companies to minimize their risks. Reinsurance costs over the last several years have been increasing on average 20% to 50%, and that translates into increased pressure in terms of premium increases. Another reason for rising condo rates and deductibles is that Hawaii has had significant insurance claims for water damage because of leaks in older buildings with aging plumbing. Of note, Hawaii has not yet to experience the full effect of the Maui wildfires in the insurance market, over $2 billion dollars in losses have been paid so far.
Q. The availability and cost of hurricane insurance is also a problem.
Even though Hawaii hasn’t had a direct hit since Hurricane Iniki in 1992, mortgage lenders continue to require Hawaii homeowners to carry hurricane insurance that can cost two to three times the annual premiums of a conventional homeowner’s policy. While condos should carry a master policy that covers 100% of the replacement cost, many condominium associations have opted to buy less than 100% coverage because of the rising cost of the condo association’s insurance master policy. In particular, the hurricane coverage within the association’s master policy has risen tremendously. The reason there is a very limited amount of “authorize”, also referred to as licensed or admitted insurance companies, only 3 – 5 companies are writing condominium master policies. Availability is very limited, and the lack of options is compounded by limits of hurricane insurance coverage afforded under these associations policies, often only 20 – 30% of the total insured value of a condominium building is insured for hurricane loss.
These limits on the hurricane coverage have resulted in agents having to piece together layers of coverage for the hurricane risk through the surplus lines insurers, also referred to as unauthorized of non-admitted insurers, to try to get 100% coverage for the hurricane risk. Unfortunately, the Insurance Division has no control over insurance rates charged by surplus lines insurers. The rates being charged is causing the significant increases in condominium associations’ master policy premiums.
For condominiums that do not fully insure its building, this affects condominium owners who want to sell their property because many mortgage companies won’t let buyers take out loans for properties that don’t have 100% coverage. This is having a huge impact on families, especially those on fixed incomes when higher insurance costs are passed on through higher association fees or rent. This hard insurance market is having a negative trickledown effect, it is also impacting the real estate and financial sectors.
Q. What kind of legislation was considered this past session and did any of it pass?
Throughout this past legislative session, there were numerous bills introduced to address this extremely hard insurance market, where availability is limited, and the cost of insurance is rising significantly. One important bill, which sought to initiate steps to stabilize the insurance market in Hawaii, was HB 2686 and the Senate companion bill, SB 3234. Unfortunately, the bill did not make it through the legislative session. One of the bill’s major amendments was to eliminate the policy limits contained in the existing law, in the Hawaii Hurricane Relief Fund (HHRF), there is a $750,000 policy limit. The bill would have eliminated this limitation and left it to the Board of Directors to decide on the limit. The Insurance Division is continuing to look at way to help stabilize the market, however, this hard market will take time to turn the other way.
Q. What can consumers do if insurance companies leave the Hawaii market? Universal Property & Casualty has been writing policies for Lava Zones 1 and 2 but plans to pull out of Hawaii on 8/31/24.
Property owners may qualify for coverage from the Hawaii Property Insurance Association also known as HPIA. The Hawaii Insurance Division publishes a range of insurance guides and premium comparison sheets for public review online at cca.hawaii.gov/ins/resources. Consumers can utilize these informational guides to review and compare sample premiums from insurance companies licensed in Hawaii for homeowners, condominium, renters, and motor vehicle insurance. Additionally, consumers need to be careful of potential scams. Many scammers prey on a consumer’s fear. Before doing business with an insurance agent or company, consumers should verify that they are an authorized insurance company or a licensed insurance agent. Consumers can go to the Insurance Division’s website at cca.hawaii.gov/ins and check to see if an insurance company or agent is licensed in Hawaii.
Q. In light of the Maui wildfire, do you think insurance rates will continue to go up and will more insurance carriers will leave Hawaii?
As noted, even before the Maui wildfires, insurance rates in Hawaii and nationwide had started to increase since 2021. The wildfire is starting to have an impact in terms of what premium people pay now and in the future. The devastating Maui wildfires are going to have a ripple effect across the whole state. However, we are working to reduce the impact by noting to the insurance companies, to consider the rarity of the Maui wildfires, in the industry they call this a “black swan” event. Where major disasters are not anticipated to occur year after year, hopefully we can convince the industry that the Maui wildfire was a black swan event so rates shouldn’t be increased tremendously to recover the losses.
Q. What can property owners do to reduce their risk of wildfire damage?
Property owners can help reduce their wildfire risks by protecting their homes from blowing embers by using fire-resistant roofs, siding and gutters, creating buffer zones around their homes by trimming back brush. These measures will help reduce the risk, protect property owners, and save lives.
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Disclaimer: this material is intended for informational purposes only and does not constitute legal advice. The law varies by jurisdiction and is constantly changing. For legal advice, you should consult a lawyer that can apply the appropriate law to the facts in your case.