Senate committee guts lava zone insurance bill

The state Senate's Committee on Commerce and Consumer Protection has voted unanimously to heavily amend a bill originally meant to help pay for property insurance for Puna and Kau residents living in high-risk lava zones.

The committee moved to alter House Bill 20 by replacing its "substantive language" with a directive to the state's Legislative Reference Bureau to conduct a study about the bill's practicality and implications. It also recommended including a provision to cover the cost of the study. The bureau is a nonpartisan legislative service agency providing legal and policy research and reference assistance to the Legislature.

In its original form, the bill called for the creation of a "lava zone insurance fund" meant to subsidize the cost of property insurance for homes in lava zones 1 and 2 on Hawaii island.

This would, according to the bill's now-discarded text, ensure that residents don't become displaced due to a sudden rise in insurance premiums, while also reducing the "disproportionate burden placed upon homeowners because of the geographic location of their properties."

"The Legislature additionally finds that subsidizing the cost of insurance premiums for properties in these zones will promote fairness, affordability and accessibility in the insurance market," HB 20 stated before its amendment, "encouraging home ownership and community resilience in these unique geographic areas."

The bill was introduced by state Rep. Greggor Ilagan of Puna, who saw it as a stopgap measure to help keep disadvantaged residents from losing their houses in the wake of drastic rate hikes following the 2018 Kilauea eruption in lower Puna. It passed in the state House at the beginning of March and was transmitted to the Senate on March 6.

After the committee vote on March 24, Ilagan expressed disappointment that its provisions were scrapped and the Senate chose to take "a couple steps back."

"I did not see this coming," he told the Hawaii Tribune-Herald. "I thought there was only going to be two options: passing it out or killing it. I didn't think there was a third option. But it definitely changes the bill into a study, unfortunately."

Even with this setback, though, Ilagan said he understands that rewriting the bill was likely the only way to keep it alive.

"I get it," he said. "If a study needs to happen first, then it's something that I will support. Because if I don't, then this probably would die. At least we can have further discussions and figure out what we could agree on … but unfortunately, that's where we're at, and I'll work with the Senate to see what we could do moving forward."

It's possible that as the bill progresses through the Senate some of its old components could be added back, he said.

"We could possibly agree to remove the study … we could possibly agree to put the subsidy back in," he said. "The possibility is there."

Ilagan's support for the bill is not the first time the Legislature has tried to assist lava zone residents. In 1991, the Hawaii Property Insurance Association was established as the "insurer of last resort," providing basic property insurance to homeowners unable to purchase coverage from private companies following the 1990 Kaimu Lava Flow.

The association is a nonprofit, unincorporated body often characterized as a "safety net." It's run by a board of directors comprised of eight insurance companies and four Hawaii insurance commissioner appointees.

Hawaii's current insurance commissioner is Scott Saiki, who leads the Department of Commerce and Consumer Affairs' Insurance Division. Saiki submitted written testimony to the committee before its Tuesday session in opposition to the bill.

"While the department recognizes the significant insurance affordability challenges faced by homeowners in high-risk volcanic hazard areas" he wrote, "(this bill) raises significant regulatory, fiscal, and market concerns."

One of those concerns is how the proposed subsidies could put more people and homes in harm's way, and make those living under the greatest threat of lava inundation reliant on government assistance in order to survive.

"Subsidies mask the true cost of risk, (and) may encourage development and continued habitation in areas with the highest expected loss exposure, and create long-term dependence on state support rather than market-based solutions," Saiki wrote.

Saiki's testimony was one of just a handful in opposition to the bill, with the vast majority voicing support for creation of the assistance fund. Most came from homeowners living in lava zones 1 and 2, who described financial hardships brought on by spiraling insurance premiums — which can sometimes amount to "second mortgage payments."

"This is an untenable situation to be punished for an event that only occurs once every 50 years," wrote Todd Reilly Sr. about East Hawaii's sporadic lava flows. "I have had to forgo dental work and repairs on my home due to the added $5,000 a year in premiums."

Another testifier, Denise Paio, has lived in the Hawaiian Beaches subdivision of Puna for five decades, and struggles to pay the $8,000 per year for her home's HPIA coverage.

"Who can afford $8,000 a year?" she wrote. "I work full time at an elementary school and I added a part-time job in order to be able to afford the insurance."