As a result of the Maui fires, home insurance in Hawaii is likely to become more expensive for most and unaffordable for many.
We may see “fire hazard zones” created for insurance purposes, similar to the lava hazard zones on the Big Island. Even if not officially defined, we will see areas designated by insurance companies as very high risk, which will bring very high insurance costs to those areas.
On the Big Island, lava hazard zones were drawn to estimate risk. In response, insurance companies have charged high rates in these areas, and now are no longer writing new policies in lava hazard zones 1 and 2.
The Hawaii Property Insurance Association was created in 1991 to address these areas where coverage was not available. Since that time it has grown to include areas beyond just lava zones where insurance is unavailable. HPIA is an unincorporated association of property insurance companies, and all such companies operating in Hawaii must participate.
Recently things got worse when in October the last company writing new home policies in lava zones 1 and 2, Universal Property and Casualty, stopped writing them and even stopped renewing its policies. With nowhere to turn for reasonable coverage, many now face being uninsured, or paying five to 10 times more with HPIA, which many cannot afford. A typical scenario is a family with whom I spoke, whose home insurance premium went from $1,300 to $7,000 per year, for a modest home.
Faced with this, many choose to go without insurance, but for those with a mortgage this is not an option. It’s become a barrier to home ownership, and creates risk of bankruptcy and home loss in local families.
We need to make HPIA-type insurance available to any who need it statewide, and we need to keep HPIA’s rates affordable. Expanding its reach will increase the pool of insured and lower risk and cost for HPIA. With proper oversight we can then lower costs for consumers.
Other actions to lower cost include creating a state-funded reinsurance program, making HPIA more transparent about its finances, publicly evaluating their finances and premiums, and setting limits on premiums. HPIA, with state reinsurance backing, must not have rates that are more than double what private insurance would cost.
HPIA can change its policies to make it available to any who need it statewide, not just those who have no coverage available. This will expand the pool of clients, reducing risk and lowering cost.
It must allow those whose insurance has lapsed to be covered, an unreasonable current exclusion which serves to further harm those who need its help the most. And it must increase its maximum coverage limits, which is currently $350,000.
Obviously, a $350,000 limit is unrealistic in a market where the average home costs much, much more. The low limit prevents many home sales and purchases because you can’t get a mortgage without insurance.
The insurance companies need to function profitably to stay in our market. We’ll need to strike a balance to not overly compete with the companies’ direct customers, to keep the companies healthy. But this is easy to do, and the concern ought not to stop us from helping people who need help.
HPIA was created to serve the real needs of Hawaii residents, and it ought to do so for real. HPIA could make all these changes itself if it were so inclined. But probably it will require state mandates to do so. The Legislature must act.
We had another state-funded insurance program, the Hawaii Hurricane Relief Fund, started in 1993 after Iniki. The hurricane insurance market stabilized and the program became inactive in 2000.
This is another example of the state stepping in to stabilize our insurance markets in the face of emergency. The fund accumulated almost $200 million. So, it’s been done, and it was successful.
We can make HPIA into a success also, but it needs expansion, more oversight, and reasonable but stricter regulation. The state is already involved in insurance and re-insurance to stabilize markets. It needs to do so now on an even larger scale.
There is an effort to create a multi-state reinsurance fund, which is likely to move too slowly to help us. But Hawaii, like many states, insures itself on many levels. The counties do so also. It’s not such a strange idea to pool our insurance costs and help our neighbors.
It’s not just Puna’s problem anymore, it’s a statewide concern. The financial losses from volcanic eruptions are dwarfed by the losses we see on Maui this year. This will affect all high fire-risk areas throughout the state with similar hazards.
No area is immune to catastrophic risk of some sort. There is risk throughout our state from storms, flooding, earthquakes, drought and, of course, fire. We need to address it and manage it.
With the Maui fires we are seeing that localized disaster risk is a much bigger issue than we realized. We can expect insurance costs to rise statewide in response to the fires, in addition to very large increases in high risk areas.
Our insurance crisis is not just Puna anymore, but more widespread and affecting more people and more property. It’s about to get much, much worse. Let’s proactively take on the task of getting our disaster-related insurance costs under control.
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