New law aims to ‘stabilize’ insurance market for condos in Hawaii

Gov. Josh Green on Monday signed into law Senate Bill 1044, a measure intended "to stabilize our insurance market" for condominium owners and their associations amid escalating premiums and dwindling coverage options.

"It expands the powers of the Hawaii Property Insurance Association, HPIA, to provide extra insurance options, stopgap measures to allow for coverage of properties that are somehow in a gray zone, unable to get adequate insurance for their condo," Green said. "It also helps us underwrite certain insurance risks. … It establishes the condominium loan program and a revolving fund to help buildings remain insurable when there's high-impact repairs that have to be done. And it sets up a loan-loss reserve program.

"Essentially, what it does is it provides a buffer. If a building or series of buildings can't get insurance, we don't want that to become a crisis."

The bill, originally the brainchild of former House Speaker Scott Saiki, was tweaked and reintroduced this year by Sen. Jarrett Keohokalole, an Oahu Democrat and the Senate Commerce and Consumer Protection chairman. Among the co-signers of the legislation is Sen. Tim Richards, a Waimea Democrat.

Keohokalole called the coverage gap for homeowners required to carry pricey natural disaster-type policies to satisfy mortgage lenders a "silent crisis that's pushing thousands of residents to the brink."

"This bill really lays groundwork for relief on that, especially for seniors who, with no alternatives, are the most vulnerable to the price spikes or the cancellations that we've been seeing throughout the community. … And it also sets up a firewall to protect potentially hundreds of thousands of residents whose lives could be thrown into disarray if there is a broader insurance market cancellation or another catastrophe like Lahaina," said Keohokalole, referring to the deadly Maui wildfires of Aug. 8, 2023.

The new law reactivates the Hawaii Hurricane Relief Fund to provide insurance coverage in scenarios where the private market fails to do so. Applications are now being accepted by the HHRF for condominium and townhouse associations of apartment owners (AOAOs) seeking to obtain hurricane commercial property insurance coverage.

Acting Insurance Commissioner Jerry Bump said applications have been coming in from AOAOs' insurance providers to the HHRF since June 24.

"I think in the first week, we had 80 applications received for quotations," Bump said. "We've already bound or issued 10 policies, just in that first week.

"Anecdotally, we're already hearing of a considerable amount of savings on two fronts: either directly by purchasing the policy through the HHRF for the hurricane coverage of an association, or through price pressure that it's putting on the rest of the market to bring their prices down."

Bump said AOAOs can reach out to their insurance agents, who would in turn contact either HEMIC or Zephyr Insurance for hurricane coverage. The remaining "all other perils" insurance will be brought online by the HPIA - which is targeting the fourth quarter this year to begin accepting applications.

Keohokalole said "no new funds were allocated" to start up the program.

"This just taps the existing reserve of the Hawaii Hurricane Relief Fund - which was about $171 million in total," he said. "That will be split three ways: partly to the Hawaii Property Insurance Association for their program; the initial tranche of money for the condominium loan program - which will, we hope, come online next year, it'll take some time to set up - and then, the remaining funds will be dedicated to the hurricane insurance program."

House Consumer Protection and Commerce Chairman Scot Matayoshi, an Oahu Democrat, said the bill will provide relief but won't be an end all, be all solution.

"I want to be honest with you …," Matayoshi said "This bill is not going to … miraculously bring insurance costs down to pre-Maui wildfire levels. This bill will expand the capacity for insurance. So, if you got a 500%, 800% increase in your premium, hopefully you can get back into the admitted market, and it will bring rates down. But I don't want to be representing this bill as a miracle cure. This is not a silver bullet."

Formed in 1993 in response to the devastation caused by Hurricane Iniki, the HHRF was established to address the gap in property insurance coverage created when many private insurers withdrew from the hurricane insurance market. As time passed and private insurers resumed offering hurricane coverage, the HHRF ceased operation and remained dormant.

In 2024, Green reactivated the HHRF to address the growing instability in the property insurance market caused by major climate events, rapidly rising premiums, and a decrease in available insurers, which created significant barriers to obtaining coverage for many AOAOs.

"The condominium community will now benefit from much-needed premium relief. As we have already seen in some of the initial submissions, properties of all sizes have seen upwards of 70% savings on their hurricane insurance," said Alex McLaury, commercial insurance agent at ACW Group.

To be eligible to apply for hurricane insurance under the HHRF, an AOAO must have been previously denied hurricane coverage by at least two state licensed insurance companies operating in Hawaii and have buildings with a total insured value exceeding $10 million.

AOAOs must purchase separate primary insurance to cover hurricane losses up to $10 million.

More information about the HHRF - including frequently asked questions, application and other forms - are available at https://hhrf.hawaii.gov.