Hawaii Lawmakers Aim to Control Property Insurance Premiums Amid Market Instability
As hurricanes, wildfires, and other climate change-related disasters at home and abroad force insurance companies to raise rates, Hawaii lawmakers pledged to attempt to stabilize the state’s property insurance market as they launched a new legislative session on Wednesday.
Because insurance companies purchase reinsurance, or insurance for themselves, on the international market, hurricanes in Florida and North Carolina as well as wildfires in California have an impact on the insurance industry in Hawaii. Some insurers wish to raise their prices in Hawaii or cease offering insurance on the islands as reinsurance premiums rise in response to these catastrophes.
Senate President Ron Kouchi told reporters at a press conference that although insurance companies had already begun to consider Hawaii a catastrophe risk state, the August 2023 Maui wildfires simply made the tendency more pronounced.
The situation has gotten worse over the past week due to the appearance of several huge wildfires that have damaged thousands of structures in and around Los Angeles.
According to a preliminary assessment released last week by AccuWeather, a private business that supplies weather and its impact data, the fires caused between $135 billion and $150 billion in damage and economic losses, making them probably the most expensive in U.S. history.
The Senate Commerce and Consumer Protection Committee chair, state Senator Jarrett Keohokalole, described the current condition of affairs as “incredibly complicated and dynamic.”
“We don’t have any certainty, for example, on what the fires in Los Angeles are going to cause in the insurance market, in part because the fires are not even extinguished yet,” he stated.
“It’s unclear at this point whether we’re at the bottom or things could get worse,” according to the Democrat. ‘What we can expect is that these larger and larger scale disasters are going to continue to increase in frequency, and we need to be prepared for it.”
Programs that were initiated after Hurricane Iniki struck Kauai in 1992 and disrupted property insurance for years will be revived by Senate Democrats. In order to offer people storm insurance at the time, the state established a fund.
After Iniki insured 155,000 policyholders throughout the state against hurricanes for ten years until private insurers entered the market again, the Hawaii Hurricane Relief Fund was established.
A unique mortgage recording fee, policyholder premiums, assessments on licensed property and casualty insurers, and a surcharge on premiums on policies issued by licensed property and liability insurers were all used by the state to maintain the fund.
Bonds to support the fund’s operations were authorized by the state and never issued by the director of finance.
Due to the state’s limited funding, Keohokalole claimed he was unable to ensure that the initiative will result in pricing that homeowners are used to. The ability to purchase insurance locally is crucial for homeowners in Hawaii, he stated.
“We can’t expect kupuna on fixed incomes or families that are struggling right now to be able to pay whatever the market dictates globally, when Hawaii is a tsunami risk state, a wildfire risk state and a hurricane risk state,” he stated.
In the long run, he said, politicians should talk about fire safety and resilience strategies that homeowners may implement to make their homes more resilient to calamities.
The volatility of the insurance market has particularly hurt condominium owners in Hawaii.
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Condo boards were increasingly deciding to lower the amount of their insurance coverage because they couldn’t afford rising costs, according to testimony given to the Legislature last year.
However, only mortgages for units in buildings insured up to full replacement value will be purchased by Fannie Mae and Freddie Mac, which purchase house loans from banks and other lenders. Because of this, banks are hesitant to provide these condo buyers loans.
According to one report, between 375 and 390 condominium properties in Hawaii had adequate hurricane risk insurance.
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Lawmakers must “deliver something” during this session, which ends in May, according to Keohokalole.
Kouchi, a Democrat as well, pointed out that without insurance, people would have to pay cash for a property instead of being able to obtain a mortgage. According to him, this would be a “tremendous impediment” to homeownership in a state where most counties have typical single-family house prices of above $1 million.
The flames in Los Angeles are also putting California’s insurance industry to the test, since big insurers have reduced their property coverage as climate change increases the frequency and severity of windstorms, floods, and wildfires.