Disaster insurance brings in billions in revenue

HONOLULU — Hawaii homeowners and businesses have purchased nearly $38 billion in disaster insurance over the last 20 years, generating more than $23 billion in net income for insurance companies and further driving Gov. Josh Green to insist that insurers be barred from suing the entities responsible for last year's Maui wildfires, including the state.

More than 160 insurance companies have paid out $2.3 billion in the year since the deadly wildfires and expect to pay another $1 billion. But Green continued to single out State Farm Insurance for insisting that it should be able to sue the state, Maui County, Hawaiian Electric, Kamehameha Schools and telecommunications companies to recoup their payments in an industry practice known as "subrogation."

"And remember that while they make these giant profits they don't send refunds back to the people when there aren't incidents, they invest in the stock market or pay their CEO $25 million like this year at State Farm," Green wrote in a text to the Honolulu Star-Advertiser. "But when a tragedy occurs they want to recoup payments that go to the victims. It's fundamentally unfair, and they call it subrogation."

State Farm did not respond to a request for comment.

On Friday the state joined a motion in Maui's 2nd Circuit Court urging Judge Peter Cahill — chief judge for the Maui court — to ask the Hawaii Supreme Court to uphold Cahill's order preventing insurance companies from obtaining damages from Hawaiian Electric to offset payouts they made to policyholders.

Cahill had barred the insurance companies from obtaining damages in their lawsuit against the utility in order to reach a proposed $4.037 billion settlement that would resolve over 650 lawsuits and claims in the aftermath of the wildfires that killed 102 people and destroyed nearly 4,000 structures, most of them homes.

On Friday, Cahill ruled against the state and attorneys representing fire victims.

Instead, the insurance companies can try to recover some of what they paid to their policyholders if their customers end up receiving proceeds from a combination of the settlement and insurance that makes them more than "whole."

Between 2004 and 2023, insurance customers in Hawaii paid $37.8 billion in "disaster" premiums, according to the Insurance Division of the state Department of Commerce and Consumer Affairs.

The policies covered customers against "damages incurred from fire, water, hurricane, wind, and natural disasters — with the exception of flood and earthquake," DCCA spokesperson William Nhieu said in an email.

During the same 20-year period, insurance companies paid out nearly $14.2 billion to policyholders, resulting in a net income for the companies of more than $23.6 billion.

The data does not account for operating costs and expenses for each insurer to settle claims, which would affect their annual profit margins.

What happens next following the Maui wildfires could once again profoundly affect Hawaii's insurance market, which continues to see the price of condo insurance skyrocket.

Following Hurricane Iniki in 1992, insurance companies stopped issuing hurricane insurance policies in Hawaii, prompting the state to create the Hawaii Hurricane Relief Fund. A decade later, in 2002, insurers resumed writing hurricane insurance policies.

More recently, following the 2018 eruption of Kilauea Volcano on Hawaii island, Universal Property and Casualty — the last company issuing lava insurance for Puna's Lava Zones 1 and 2 — pulled out, and as of Saturday, homeowners in those zones no longer have lava insurance.

Janet Ruiz, director of strategic communication for the Western United States for the Insurance Information Institute, said that each year of insurance claims and payouts has to be looked at individually, versus "a 20-year compilation or a span of years" to determine whether a company makes a profit or not.

Taking into account for company overhead or expenses in paying out claims, Ruiz said, "If they pay out more than $1 per a $1 claim, then there's no underwriting profit."

Green continues to call the insurance companies "greedy" for insisting on their ability to sue, holding up the $4 billion settlement that he helped broker.

"Remember, they take their upside/profit and invest it, every year, which should give them a buffer so that when a tragedy occurs they can manage costs," Green said. "And annually they assess risk and have increased rates. They should be able to handle this disaster without trying to get their money back to show another large profit."

He expects the official cause of the fires to be released by Attorney General Anne Lopez in mid-September.

"Let me be blunt with you," Green told the Star-Advertiser's editorial board last week. "The report is going to say what everybody knows: Wires came down, a fire started. A fire got put out and then they (Maui firefighters) went to fight three other fires. The fire that was put out in Lahaina had some embers which, because of the winds of 74 mph, sent them up into the air. That's what it's going to say. I don't think there's going to be some 'eureka' moment about what happened. That already is clear. This is why the tail end of a very large storm is dangerous. … Everyone knows all the facts about the sirens not being used. … It is a combination of a wildfire that still simmered underneath the ground, followed by winds."

Asked about the response of governmental agencies, the governor said the Maui Emergency Management Agency "was not as good as the local firefighters and police that day. That's evident. I don't think anyone is disputing that."

"Everybody involved here has responsibility to some extent," Green said.

Attorneys representing the insurance companies previously told the Star-Advertiser that their investigation found the wildfires were sparked when an aging, wooden utility pole overloaded with telecommunications equipment snapped in high winds in Lahaina, causing it to land on neglected, overgrown brush belonging to landowner Kamehameha Schools across from Lahaina Intermediate School, mauka of Lahaina town.

The attorneys said the fire later reignited and shot embers into the sky and triggered a path of flames all the way to Lahaina's historic Front Street and the water's edge, where panicked evacuees leaped into the ocean to escape the inferno.

A filing by the insurance companies' lawyers in Honolulu Circuit Court placed the blame on Hawaiian Electric and the telecom companies for ignoring warnings and industry standards, and for following a policy the lawyers called "a 'wait until it breaks' plan" of maintaining their wooden power poles and overhead power lines.

After the fire, an inspection of the Kamehameha Schools land found that Kamehameha had failed to properly maintain firebreaks it had been ordered to create three years before, according to the filing.

Green brokered the proposed settlement and said he had to work hard to convince the parties not to sue one another in order to prevent catastrophic lawsuit judgments that the governor said would likely bankrupt Maui County and Hawaiian Electric and make it financially harder for Kamehameha Schools to educate Native Hawaiian children.

The state likely would have to bail out Maui County at a cost to taxpayers, he said.

"I pushed us right to the breaking point of each of the institutions," Green said.

Under the proposed settlement, Hawaiian Electric would pay $1.99 billion, Kamehameha Schools would pay $872.5 million and the state would pay around $750 million.

Amounts to be paid by Maui County and three other defendants — West Maui Land Co., Spectrum Oceanic LLC and Hawaiian Telcom — have not been disclosed but add up to about $400 million.

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Disaster insurance premiums versus revenue

Year Cost of Premiums Insurance Co. Income

2004 $1.38 billion $900 million

2005 $1.5 billion $1.04 billion

2006 $1.68 billion $1.2 billion

2007 $1.7 billion $1.25 billion

2008 $1.7 billion $1.2 billion

2009 $1.6 billion $1.16 billion

2010 $1.6 billion $1.16 billion

2011 $1.6 billion $1.1 billion

2012 $1.6 billion $1.1 billion

2013 $1.69 billion $1.1 billion

2014 $1.78 billion $1.19 billion

2015 $1.8 billion $1.1 billion

2016 $1.9 billion $1.2 billion

2017 $1.96 billion $1.2 billion

2018 $2.06 billion $1.17 billion

2019 $2.1 billion $1.25 billion

2020 $2.1 billion $1.35 billion

2021 $2.35 billion $1.55 billion

2022 $2.6 billion $1.7 billion

2023 (estimated) $2.77 billion $415 million

Source: State Department of Commerce and Consumer Affairs Insurance Division