Hawaii’s state government has begun accepting applications for hurricane insurance from condominium and townhouse associations struggling to secure full coverage in the increasingly challenging insurance market.
Last August, Governor Josh Green made an emergency proclamation aimed at stabilizing the insurance market after numerous condominium buildings faced difficulties obtaining comprehensive insurance coverage from the limited number of insurance providers in the state.
In the wake of the devastating 2023 Maui fires and other global natural disasters, there are multiple factors contributing to this crisis.
Senate Commerce and Consumer Protection Committee Chair Jarrett Keohokalole highlighted a critical issue: aging infrastructure.
He noted that many condominium buildings in Hawaii, particularly in Honolulu, are over 30 years old.
Basic maintenance items, such as replacing aging water pipes, have often been neglected, leading insurers to scrutinize these buildings more closely.
Keohokalole stressed that those buildings lacking the necessary maintenance and unable to secure comprehensive commercial and hurricane insurance become “stuck in a downward spiral.”
This situation presents a significant challenge; securing loans for repairs becomes difficult, and transactions involving the title of the buildings are also hindered, impacting not only sales but overall property values and assessments.
Lenders typically refuse to finance buildings without insurance coverage, creating a cycle where necessary repairs cannot be funded without loans, further perpetuating the problem.
Associations that lose traditional insurance coverage may have to resort to unregulated surplus lines, which often come at exorbitant costs—sometimes doubling the insurance expenses for these buildings.
As a result, homeowner association fees for condominium owners are escalating considerably.
Currently, approximately 1,200 associations in Hawaii are without full hurricane insurance coverage.
The emergency proclamation has allowed the Hawaii Hurricane Relief Fund (HHRF) to resume issuing hurricane insurance, a program that has been inactive since the early 2000s following Hurricane Iniki in 1992.
So far, the HHRF has already received 80 applications from associations seeking assistance.
Acting Hawaii Insurance Commissioner Jerry Bump emphasized that the goal of this initiative is to stabilize the market rather than replace existing insurance options.
Associations applying for the state-administered hurricane policy are required to have a commercial insurance policy that covers other risks, such as fire.
Additionally, these associations must obtain at least $10 million in hurricane coverage as a baseline, although they may have been denied full coverage by local insurers for additional building coverage.
The state program aims to cover up to an extra $90 million in coverage.
Bump reiterated that HHRF does not intend to compete with insurance carriers that are still willing to do business in the state.
He mentioned that there are admitted carriers restricting their willingness to provide full coverage, with limits anywhere from $10 million to $25 million.
While some insurers may still offer comprehensive coverage, this is becoming increasingly rare, prompting HHRF to provide an additional safety net.
Ideally, the HHRF will operate at lower rates than the surplus lines market, helping to encourage traditional insurers to return to Hawaii.
Bump noted that, unlike the aftermath of Hurricane Iniki, today’s insurance landscape is heavily influenced by global climate risk.
Catastrophic events, such as fires in California and hurricanes in Florida, are now impacting the insurability of properties in Hawaii as their global reinsurance conditions tighten.
He explained that reinsurers are increasingly withdrawing from, or raising their rates in, coastal markets due to climate-related price inflation.
This session, legislators also passed a measure that will enable the Hawaii Property Insurance Association to begin offering commercial insurance policies to those who have been forced to turn to surplus lines.
The association currently acts as the last-resort insurer in lava zones, and Bump anticipates that this new program will be operational by mid-fall.
In addition, the recent legislation includes funding to offer loans to condominium associations to conduct necessary maintenance repairs, enabling them to obtain regular insurance policies.
Both the state-administered commercial and hurricane insurance programs rely substantially on reinsurance, meaning the state retains only a percentage of the actual risk.
This approach involves the state paying other insurance companies to cover the rest of the portfolio.
Consequently, the reinsurance rates will heavily influence the costs associated with obtaining policies through the state-administered programs.
Bump cautioned that while the HHRF will not be focused on making a profit, the rates may not necessarily be lower than traditional market options.
He articulated the program’s goal to provide competitive pricing, intending to apply pressure on surplus lines carriers to lower their rates to remain attractive.
The measure is now awaiting Governor Green’s signature, which is expected as it was not part of his intentions to veto list.
image source from：hawaiipublicradio
