A Must-Read for Condo Owners
Aloha!
My name is Jillian Anderson and I hope to soon have the opportunity to represent you in our Hawaii State House.
If you are a condo owner, this is an email you will NOT want to miss. While it's not the most exciting subject, rising condo insurance has become a big crisis in our community and the situation is evolving quickly.
Condominium insurance is a topic I have been following extremely closely and will be my top priority to address if in office. Below you will read why we are facing such sudden skyrocketing premiums, what our state has done about it, how our district is being affected, and the path forward.
Mahalo,
Jillian Anderson
What Happened to Our Condo Insurance Market?
With the August 2023 Maui wildfires, Hawaii was listed on the global map of catastrophic loss events for the first time since Hurricane Iniki in 1992.
This tragedy, along with an increasing frequency of disasters across the globe, have caused for higher rates of reinsurance (what insures our insurers), suddenly surging insurance premiums for countless condominiums.
The average condominium has seen a 300%-400% increase in premiums, subjecting condo dwellers to large assessments and monthly fee increases to cover the higher rates which show no signs of going down any time soon.
Only 3 companies (DB Insurance, First Insurance, and Allianz/Fireman's Fund) are part of what is called the "regulated market".
The rest are in the unregulated market, allowing for sky-high rates in exchange for coverage for condos who otherwise would not be covered by an insurer in the regulated market.
What Has State Government Done About the Crisis?
Even though condo owners were getting hit with increased premiums when our State Legislature was in session this spring, no legislation passed to do anything about it. Instead, Governor Green assembled a task force to look at the evolving situation and provide recommendations.
As a result of the task force's findings, on August 7 Governor Green issued an Emergency Proclamation to allow for additional options for condos to purchase insurance including:
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Allowing loans to be made to the Hawaiʻi Hurricane Relief Fund (HHRF) and the Hawaiʻi Property Insurance Association to facilitate issuance of hurricane and property insurance policies to condo associations
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Allowing HHRF to issue hurricane insurance policies for large condominium buildings and set its own coverage limits
The Hawaii Hurricane Relief Fund was created in 1993 when hurricane insurers pulled out of the market following Hurricane Iniki. This state-run temporary fix offered a safety net until a stable private insurance market returned in 2000. Now, the state will be using the same fund to offer condos who otherwise would be uninsured or who would be paying incredibly high premiums an alternative.
How Are These Surging Premiums Affecting Waikiki?
For those of you reading this who own a condominium, the worst may still be yet to come.
According to Hawaii Business Magazine, ~400 condos have decided to have less than 100% replacement coverage. Yes, it means lower premiums now, but if a disaster does strike, there may not be enough money to rebuild. For this reason, many banks are putting units in these buildings on "do not lend" lists, so potential buyers are struggling to secure mortgages.
Even if your condo still has 100% replacement coverage, you have probably seen your maintenance fee jump or a big assessment be put on your shoulders, making your unit less attractive for purchase.
For these reasons, we are seeing sales plunge in Waikiki and Makiki-Mōʻiliʻili. Between May and June of this year, condo sales in Makiki-Mōʻiliʻili fell 38%. In Waikiki, condo sales have fallen a whopping 48%.
We are not just seeing more condos put on the market (in many cases by owners who are fleeing this insurance mess), but they are taking longer to sell. As of June, we have had more condos for sale on Oahu than we have since September 2020 in the midst of the pandemic. At the same time, they are taking a week longer to sell compared to the same time last year.
You may have been sold by your condo association for your building to opt in for less than 100% replacement cost coverage with the promise of lower maintenance or assessments. But, if you ever want to take out a home equity line of credit or wish to sell, you will likely face a great struggle for local banks to take the risk on your inadequately insured condominium.
Where Do We Go From Here?
While the Emergency Proclamation was made nearly 2 months ago, not many strides have been made since. Condo owners continue to suffer month after month and for most of us, not much tangible help is on the horizon.
At the same time, we are watching a fight play out in the courts over claims for the Maui wildfires. As Governor Green advocates to block insurance companies from recouping the money they have paid out to victims, we find ourselves at high risk of losing major insurers, as has already been occuring in California.
If that happens, Governor Green has floated the idea of creating a state-run captive insurance market in part financed by a tax on our visitors.
When the Legislature reconvenes next January, this proposal will certainly be on the table. I struggle to identify one program or department in our state government that is running efficiently and reliably. Do you want to put your condo's risk in the state's basket?
Here are my thoughts....
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The reality is, we need the private insurance market much more than they need us.
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Rather than think we can move on without them, we must grow the number of private insurers in the regulated market by taking actions to reduce our state's risk like implementing better wildfire prevention strategies to having many of our aging condominiums catch up on deferred maintenance.
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The Hawaii Hurricane Relief Fund is a good temporary solution as the market stabilizes, which we are already seeing signs of, but the belief that our visitor industry is an endless pot of gold for any endeavor is dangerous. Getting enough revenue to adequately borrow for a state-run captive insurance market may require us to rob our tourists blind. As a state, we must work with insurers on lowering our premiums rather than running them out of our market.