Hawaii has been the subject of some scary national headlines lately regarding property insurance, but the state insurance commissioner Tuesday expressed a less calamitous view of the industry affecting homeowners.
Gordon Ito, who has been an insurance industry regulator in Hawaii for three decades, said the market is in the midst of an extremely hard period where availability of insurance is limited and costs have increased significantly.
But Ito isn’t concerned about a major carrier failing or leaving Hawaii and roiling the market along the lines of what happened after Hurricane Iniki struck Kauai in 1992.
“I don’t have, at this point, any major concern of a large carrier pulling out completely from our market,” he said Tuesday in a media briefing. “There are insurers that are reviewing their books and looking at putting in stricter underwriting standards or retaking a look at properties that might be at a higher risk. So there are insurers that are starting to nonrenew some policies in certain areas, but it’s not a significant amount and I think in the homeowners market there’s still sufficient capacity to cover those nonrenewals.”
The current turmoil represents a fourth “hard market” period in as many decades in Hawaii, and hasn’t come close to what happened after Iniki when a pair of insurance companies failed and the state stepped in to provide government insurance programs.
Some recent national news headlines have suggested that a broad crisis has developed in Hawaii’s insurance market following the Aug. 8 Maui wildfire disaster, which killed 101 people and destroyed or damaged more than 2,700 buildings, including multi-unit condominiums, preliminarily valued at $5.6 billion.
Newsweek published a story in April with the headline “Hawaii’s Insurance Crisis as Premiums Nearly Quadruple.” An article from Insurance Business America in March was titled “Condo insurance woes strike Hawaii: Insurance costs are skyrocketing — sometimes by 1,000%.”
To be sure, many policies for multi-unit condo properties have had annual premiums rise a lot. But in many cases the increases have been because of higher reinsurance coverage costs driven by global events predating the Maui wildfires.
In other instances, exorbitant premium increases can be due to issues with unique circumstances for an individual condo complex, such as water damage claims stemming from plumbing issues or deferred maintenance.
Some increases also can be due to high localized wildfire risk, but Ito said reinsurance costs have been the main driver of higher rates broadly.
Insurance for insurance
Reinsurance is something insurance companies buy to cover extraordinary losses, and it is part of a policy’s price. This reinsurance cost, which is tied to the global insurance industry, has increased 20% to 50% annually during the past several years, according to Ito.
“The cost to insure homes or condos is going up because of this tremendous surge in the reinsurance costs,” he said.
Ito said there were 23 climate-related disasters in the United States in 2023 that caused at least $1 billion in losses, and that in five of the past six years, the reinsurance industry incurred losses of over $100 billion worldwide.
The Lahaina disaster was one of those events, with an estimated $3.1 billion in insured losses.
Mike Onofrietti, vice chair of the Hawaii Insurance Council, said during a Hawaii Economic Association presentation in May that the Lahaina disaster has affected reinsurance costs in Hawaii but that the cost of reinsurance isn’t really localized.
“Reinsurance is worldwide,” he said. “Events that happen in Europe, or in Asia, or in Kansas, or in Florida, all impact the cost of reinsurance that insurers pay regardless of where they write business.”
Ito said the insurance industry shouldn’t view the Maui wildfire disaster as something that is likely to be repeated, because of what has been learned and risk reduction work that is being implemented.
“Were pushing back against the insurance industry … to say what happened in Lahaina is what the industry refers to as a ‘black swan’ event,” Ito said. “It’s not an event that’s likely to occur year after year or once every few years. It’s a one-off type of situation. So you shouldn’t try to load in (risk of another catastrophic Hawaii wildfire) to increase costs. We’re going to be taking that position.”
The insurance division of the state Department of Commerce and Consumer Affairs regulates premium prices only for locally licensed insurance companies. Other companies, known as surplus line providers, do not have regulated rates and thus charge more and have fewer customers.
Small market
There are mainly only three major locally licensed companies offering policies for condo properties that in many cases can cost over $100 million to replace.
One of these firms, DB Insurance, has not been renewing some policies for condo projects, depending on location and form of construction, according to anecdotal reports Ito has received.
The other two firms are First Insurance Co. of Hawaii and Allianz/Fireman’s Fund. All three, Ito said, are committed to the Hawaii marketplace.
A decision by one of the companies in early 2023 has had a major impact on condo project policies, according to Ito, who said the company was no longer willing to insure the full replacement cost of property damaged by a hurricane.
This move left condo association boards to find other companies, often higher-priced surplus lines, to make up the difference that in some cases ranged from 70% to 90% of the total property value.
Onofrietti said that in some cases this resulted in a new total premium that cost multiples of what it did previously.
“I think that’s the sticker shock many are facing now,” he said during the May presentation.
To understand how much the price of reinsurance can affect a policy premium, Ito described what happened in early 2023 when one fairly small insurance company stopped renewing policies for property in higher-risk lava zones on Hawaii island. He said the reinsurance portion of the premiums for about 1,000 customers collectively surged to $6 million from under $1 million previously, adding over $5,000 per policy.
Ito said there are some signs that reinsurance costs are stabilizing and may be going down a little.
Past difficulties
Hawaii’s history of what Ito describes as “hard” market periods includes 2018 after hurricane losses in Florida and Louisiana, and a stretch from 2006 to 2008 in part driven by effects from Hurricane Katrina, which caused around $160 billion in damage largely to New Orleans in 2005.
Iniki, however, was far more disruptive to Hawaii’s insurance market.
The 1992 storm, which caused about $1.6 billion in insured losses that would be about $3.6 billion today with inflation, led to the failure of two local insurance companies and a state takeover of a third firm. Policies for about 90,000 homeowners representing about 40% of the market were canceled or not renewed.
Initially, new rates of the company rescued by the state were triple the cost of prior premiums.
A new state-organized hurricane insurance fund also was established, and some homeowners turned to another special source of more expensive insurance. This other source, the Hawaii Property Insurance Association, was initially for private companies to insure property in areas with high volcanic eruption risk but got expanded to provide general property insurance that costs more than normal rates.
Earlier this year, state lawmakers considered legislation to address market concerns. One measure, House Bill 2686, in part would have lent funds to HPIA and the hurricane insurance entity so that participants could buy reinsurance.
Gov. Josh Green and members of the Legislature are also working on forming a task force to see what might be done to help improve the property insurance market in Hawaii.
Onofrietti said Hawaii’s insurance market, like before, will recover.
“This is a tough situation,” he said during the May presentation. “But I’ll say this: We dealt with it after Hurricane Iniki as well. This is not the first time Hawaii has dealt with this combination of reinsurance issues and insurability issues. It will get better but it’s going to take time.”
