Haris Ashley
Hawaii's insurance market is in crisis, with premiums skyrocketing for homeowners and condo owners alike. In this context, hurricane insurance stands out as an especially costly type of coverage. This is due in part to the increased risk of extreme weather events, but also to the high cost of reinsurance, which is used by insurance companies to minimize their risks. While hurricanes are rare in Hawaii, mortgage lenders require homeowners to carry hurricane insurance, which can cost two to three times the annual premiums for a conventional homeowner policy. This additional cost is a heavy burden for many families, especially those on fixed incomes.
| Characteristics | Values |
|---|---|
| Last hurricane in Hawaii | September 11, 1992 (Iniki) |
| Hurricane insurance cost | Two to three times the annual premiums for a conventional homeowner policy |
| Condominium building/complex hurricane insurance | Covers 100% of the cost to replace the property |
| Hurricane insurance triggering event | Announcement of a hurricane watch or warning from the National Weather Service |
| Hurricane watch | Issued when sustained winds of 74 mph or higher are possible |
| Hurricane warning | Issued when winds of 74 mph or higher are expected or occurring |
| Hurricane insurance premium calculation basis | Construction type of the dwelling and the deductible for the coverage |
| Flood insurance cost | $1,023 annually (median cost for NFIP participants in Hawaii) |
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What You'll Learn
The impact of the Maui wildfires
Hurricane insurance in Hawaii is a supplemental insurance policy to home insurance. It covers wind-related damage associated with hurricanes, but most policies do not cover flooding. This means that additional flood insurance is required to cover any damage caused by flooding or storm surges. This is because heavy rains can trigger a cascade of natural disasters, including landslides and mudflows.
The last hurricane to hit Hawaii was Hurricane Iniki on September 11, 1992, which caused major damage to Kauai and parts of Oahu with winds of up-to 160 mph. However, the relative infrequency of hurricanes in Hawaii can lead to people forgetting about hurricane coverage for their homes.
Now, onto the Maui wildfires. The 2023 Maui wildfires were among the top 10 deadliest US wildfires on record since 1871 and were the deadliest natural disaster in Hawaii's history. The fire destroyed the historic town of Lahaina, killing over 100 people and causing billions of dollars in damage. The fire was caused by "re-energized" broken power lines that ignited vegetation around a utility pole. The fire was also fueled by high winds from Hurricane Dora, a Category 4 storm that hit the islands on August 8, 2023.
The response to the wildfires was hampered by poor communication between Maui's mayor and state and local emergency officials, as well as understaffing and equipment issues within the police force. The police investigation and subsequent reports focused on the utility's potential culpability for the fires, the origin of the blazes, and the response from fire crews and other agencies.
In the aftermath of the wildfires, thousands of residents sued Hawaiian Electric, Maui County, and the state of Hawaii, blaming Hawaiian Electric for causing the fire. The utility acknowledged that one of its downed power lines ignited a blaze, but also stated that many factors and actions of multiple parties contributed to the devastation.
The community support and donations played a crucial role in helping those affected by the wildfires, with organizations like World Vision providing aid to thousands of displaced residents.
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The high cost of reinsurance
Hurricane insurance in Hawaii is a supplemental insurance to home insurance. It covers wind-related damage associated with hurricanes, but it does not include flooding, which requires additional flood insurance. While not mandated by the state, banks and mortgage lenders often require homeowners to have hurricane insurance as part of their mortgage approval.
The high cost of hurricane insurance in Hawaii can be attributed, in part, to the high cost of reinsurance. Reinsurance is a form of insurance for insurance companies, allowing them to manage risks and protect against catastrophic losses. The reinsurance market has experienced significant losses in recent years due to global disasters, resulting in reinsurers recalculating their risks and raising their rates. This has had a flow-on effect on insurance carriers, who pass the increased costs on to their customers in the form of higher premiums.
In the case of Hawaii, the reinsurance market has observed losses of approximately $100 million in four of the past five years. As a result, insurance carriers have experienced substantial cost increases of up to 50% over the past several years. These increased costs are then passed on to the consumer, resulting in higher hurricane insurance premiums.
To address the high cost of reinsurance and its impact on insurance rates, Hawaii state lawmakers and the insurance industry are working on new legislation. One proposed solution is to position the Hawaii Hurricane Relief Fund and the Hawaii Property Insurance Association to provide insurance coverage when the private sector is unable or unwilling to do so. Additionally, there have been calls for the state to step in as a provider of reinsurance, which may offer some long-term relief by spreading the risk and reducing the financial burden on insurance companies.
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Water damage in older buildings
Water damage can occur in older buildings in Hawaii due to several factors, including heavy storms, wind, hurricanes, and plumbing issues. The humid climate in Hawaii also contributes to water damage by creating an environment conducive to condensation buildup and mould growth.
One common issue is ageing plumbing systems, which can corrode over time, leading to pipe bursts and flooding. This wastage of water can cause significant damage to the building's structure and its contents. Additionally, clogged gutters can cause water to overflow and damage roofs, walls, and foundations.
To mitigate water damage in older buildings, it is crucial to regularly inspect and maintain plumbing systems, gutters, and appliances that use water, such as dishwashers and washing machines. It is also important to address any signs of condensation or leaks promptly to prevent mould and mildew growth.
In the event of water damage, it is essential to act quickly to minimize the impact. First, identify the source of the water and shut off the supply if possible. Then, contact emergency responders, restoration teams, your insurance provider, and the building manager. Drain standing water and remove valuable items from the affected area to prevent further damage.
Water damage is classified into four classes, with Class Three damage, involving water flowing from the ceiling to the floor below, being the most severe. The categories of water, including white, grey, and black water, indicate the level of contamination, with grey and black water being potentially hazardous to health.
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The availability of insurance
Hurricane insurance is a supplemental insurance policy to home insurance in Hawaii. It covers wind-related damage associated with hurricanes, but it is important to note that most hurricane and home insurance policies do not cover flooding. This means that additional flood insurance must be purchased to cover any damage caused by flooding. Flood insurance is a special policy that is federally backed by the NFIP and available for both homeowners and businesses.
While the state of Hawaii does not require hurricane insurance, mortgage lenders may make it a requirement for financing. This is because hurricanes can cause extensive damage to properties, and lenders want to ensure that their investment is protected. As a result, homeowners in Hawaii may need to pay high premiums for hurricane insurance, which can be two to three times the annual premiums for a conventional homeowner policy.
The availability of hurricane insurance in Hawaii has been impacted by the state's low hurricane risk. After the category 4 hurricane Iniki hit Hawaii in 1992, causing major damage, many insurance companies stopped offering hurricane insurance policies. In 2002, insurance companies resumed writing hurricane insurance policies, but the state's low hurricane risk may still impact the availability and affordability of coverage.
The high cost of hurricane insurance in Hawaii is also influenced by the limited number of insurers offering policies. In the secondary market, where insurers are not bound by state rules or rates, prices can be significantly higher. This has led to some condo associations and homeowners struggling to find affordable coverage, with some reducing their coverage to less than 100%.
To mitigate the high cost of hurricane insurance, homeowners can take precautions to mitigate damage, such as installing roof clips and foundation anchors. Some insurance companies offer premium credits or discounts for these types of retrofits. Additionally, homeowners can consider purchasing supplemental hurricane policies as gap coverage to make up for any shortages in their primary policy.
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The cost of insurance claims
The type of coverage provided by hurricane insurance policies in Hawaii is crucial to the cost of insurance claims. Hurricane insurance typically covers wind-related damage, while flood damage is often excluded and requires separate flood insurance. Additionally, the triggering event for hurricane insurance to take effect is important. In Hawaii, this is usually an announcement of a hurricane watch or warning from the National Weather Service, with sustained winds of 74 mph or higher. The specific language in the policy regarding the triggering event can vary, so policyholders should clarify this with their insurers.
The construction type of the dwelling and the deductible amount also influence the cost of insurance claims. Homeowners who take proactive measures to mitigate hurricane damage, such as installing roof clips and foundation anchors, may be eligible for discounts on their premiums. However, as seen in the example of an ageing high-rise in Waikiki, buildings with ageing infrastructure may struggle to find affordable insurance, as they pose a higher risk to insurers. This can result in higher premiums or difficulty in obtaining coverage, impacting the overall cost of insurance claims.
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Frequently asked questions
There are several reasons why hurricane insurance in Hawaii is so high. Firstly, the state has a history of natural disasters, including hurricanes and wildfires, which have resulted in significant financial losses. Secondly, the cost of reinsurance, which insurance companies use to minimize their risks, has been increasing, leading to higher premiums for customers. Thirdly, there is a high demand for hurricane insurance in Hawaii due to the risk of hurricanes and the requirement by mortgage lenders for homeowners to carry hurricane insurance. Additionally, insurance companies may be increasing premiums due to the aging infrastructure in the state, which increases the risk of water damage and other issues.
On average, the cost of homeowners insurance in Hawaii has been higher than in other states. In 2021, the average premium in Hawaii was $1,299, while the national average was $1,411. However, this varies depending on the state and the specific region.
The high cost of hurricane insurance is having a significant impact on Hawaii residents, especially those on fixed incomes. Some people may struggle to find insurance companies that are willing to provide coverage, and those who do obtain insurance may face high premiums and deductibles. This has also led to a decrease in the availability of insurance in the state, with some companies choosing to not renew policies or increase their rates.
Yes, there are alternative options available for Hawaii residents, such as parametric insurance offered by companies like Vortex Weather Insurance and ExcurInsure. These companies specialize in providing hurricane coverage for businesses and commercial properties, and they take into account the unique structural, geographical, and meteorological environments of the Hawaiian Islands.
There have been efforts to address the high cost of hurricane insurance in Hawaii through legislation. For example, the Hawaii Hurricane Relief Fund (HHRF) aims to provide relief funds for those affected by hurricanes. Additionally, the state is working to expand the Hawaii Property Insurance Association (HPIA) to increase the availability of insurance and maintain affordable options for residents.
