When the Peninsula at Hawaii Kai condo community got news of its insurance bill for 2024, the condo owners were in for an unpleasant surprise. The association’s premium was going up almost tenfold, to $3.3 million from less than $400,000, said Kris Hanselman, an owner in the community.
That would mean an increase of thousands of dollars per year, or hundreds a month, for owners, depending on the square footage of their homes, Hanselman said. It’s an unexpected cost-of-living increase that could prove too much for some families, she said.
“That amount of money will be very hard to manage for some people,” she said.
Unfortunately for the approximately 400,000 people living in condominiums in Hawaii, the Peninsula’s experience is hardly alone. The insurance industry is in the grips of what the experts call a “hard market” — a technical term that’s self-explanatory. It’s hard to buy insurance at good prices, and the premium increases are falling onto residents. The massive, global reinsurance market from which the primary insurers buy insurance to spread their risk has turned to stone.
A confluence of events is causing the hard market, said Hawaii Insurance Commissioner Gordon Ito. And the resulting spike in premiums — primarily for hurricane insurance for condominium associations — is sending shocks to homeowners across Hawaii, Ito said.
There’s little government officials can do, Ito said.
“The reinsurance market is beyond our control,” Ito said during a wide-ranging interview with news media to explain what’s going on.
But there are rays of hope, Ito said.
For example, he said, owners of single-family homes appear to be being spared the high premium increases, although that’s hardly solace to condo residents bearing the brunt of the impact.
In addition, Ito said, the hard market already appears to be softening.
“The market is actually starting to stabilize,” he said.
“These insurance carriers can name their price, and that’s what they’re doing now.”
Kirk Christman, ACW Group
Events outside of Hawaii have mostly led to the hardening, according to the insurance company International Catastrophe Insurance Managers, also known as ICAT. One thing driving insurance premiums higher is that the price of just about everything has spiked in the past several years, ICAT says in a recent document titled “Changing Times in Catastrophe Insurance.”
“The increased cost to replace and repair damaged properties due to inflation has driven up the price of claims and, in turn, insurance,” ICAT reports. “If insurers don’t charge enough in premiums, they run the risk of being unable to pay out claims in full.”
It’s not just buildings, Ito says. The cost of replacing goods like automobiles also has increased, putting pressure on insurers to increase rates to cover losses, he said.
Perhaps more important than inflation is rising claims due to mass disasters. Catastrophes like wildfires in California and hurricanes on the Gulf Coast combined with the Covid-19 pandemic helped drive a national market hardening, ICAT says in another document titled “The Makings of a Hard Market: A Timeline.”
All of that hardening was happening before Hawaii gained the dubious distinction of being the locale of the deadliest wildfire in modern history. The Maui wildfires have generated an estimated $3.1 billion in property insurance losses, Ito said.
“The reinsurance market has had over $100 billion in losses for the fourth consecutive year in 2023,” Ito said.
Hurricane Insurance For Condos Is Crux Of Problem
Amid these losses, insurers are changing criteria for insuring properties, Ito said. That might mean pulling out of areas considered risky, Ito said, or not renewing certain types of policies. In Hawaii, for instance, there are anecdotal reports that DB Insurance has quit renewing insurance for wood frame condo buildings, which Ito said he has heard but could not confirm.
DB officials did not respond to requests for comment.
The real problem for Hawaii condo owners, Ito said, is a relative lack of master hurricane insurance policies covering condominium structures and common areas. None of Hawaii’s hurricane carriers has pulled out, but he said at least one won’t provide 100% coverage against hurricane losses. This, he said, has left local agents with the daunting task of cobbling coverage from the secondary insurance market, where premiums can vary wildly.
“This is what’s really caused havoc in the condominium AOAO situation,” he said.
It’s also what led to the sharp increase in premiums at the Peninsula, says Kirk Christman, an insurance broker with ACW Group in Honolulu who provides insurance for the property. Christman said he needed to pull together a group of 60 different insurers including multiple Lloyd’s of London syndicates to get coverage for the Peninsula.
“These insurance carriers can name their price, and that’s what they’re doing now,” he said.
For now, the Peninsula has found money from a legal settlement it can use to cover the cost of the rising premiums for 2024, Hanselman said. But halfway through the year, there’s no clear plan for 2025, she said.
“It’s an unknown,” she said.
And there’s no clear plan for a government intervention.
“You can’t just make these private companies come in and insure for a loss,” Christman said.
“Hawaii’s Changing Economy” is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.
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June 05, 2024 at 10:57AM
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