Over the past 20 years property insurance carriers have collected nearly $38 billion in premiums from Hawaii property owners, paid out around $14 billion in claims, and amassed at least $24 billion in net profit.
(This profit does not include the compounded interest and returns earned by investing those premiums.)
Why were many of these insurance carriers allowed to skip town with all that profit just when policyholders need them most?
In 1971, Act 117 created the Hawaii Insurance Guaranty Association to “provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and to prevent financial loss to claimants or policyholders due to the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of such protection among insurers[.]”
HIGA could play an important role in addressing the skyrocketing insurance premiums now facing condo and homeowner associations — some of which are seeing their premiums increase by 600% to 1,300% a year.
Some condo owners, particularly retirees on fixed incomes, see no way out. This crisis is also affecting renters who cannot afford to own a home in Hawaii, as landlords are passing on increases in maintenance fees to their tenants.
“Insurance For Insurance”
During recent town halls and media coverage of this crisis, a phrase that keeps coming up is “insurance for insurance” — also referred to as “reinsurance.” However, no one has mentioned how the statutorily authorized HIGA, incorporated in 1974 as a 501(c)(6) nonprofit, serves as a local insurer of insurance carriers.
HIGA collects a percentage of the premiums gathered by insurance carriers and retains these funds in Hawaii to cover claims filed by Hawaii policyholders if any of these carriers go out of business.
HIGA functions like the Federal Deposit Insurance Corporation on steroids: instead of refunding the amount deposited into a secured bank account, HIGA covers the payout that the property owner was insured for by the insolvent carrier.
In 2023, HIGA collected $9.36 million in revenue; it had just under $4.1 million in expenses and liabilities that year. The total assets held by HIGA going into 2024 were almost $26 million.
Comparing a similar fund in a state with a comparable population: the New Hampshire Insurance Guaranty Association had $54.5 million in assets in 2022 — twice the amount Hawaii has.
However, if we look at other states facing skyrocketing insurance premiums, consider the Florida Insurance Guaranty Association, which collected $646 million in revenue in 2022 and paid out $677 million that year to cover claims of policyholders of insolvent insurance carriers.
When businesses face rising insurance premiums, paired with increasing deductibles, they often consider self-insuring.
One way to self-insure is to place the cash that would have gone to an insurance carrier into a specially managed investment account and continually roll profits and interest back into that account. This is essentially what insurance companies do with the premiums they collect from policyholders.
This is not meant to be the only solution to a complex problem
Condo associations and HOAs may want to explore self-insuring. Additionally, developers could consider pooling their buildings together to create their own insurance fund. Just imagine if, in 20 years, Hawaii had $50 billion sitting in local insurance funds and also had a robust HIGA fund as backup.
The Legislature could authorize self-insuring condo associations and developer insurance funds to become HIGA members, contributing at the same rate as other insurance carriers, and enjoying the same protections of having HIGA’s insurance on their insurance.
The Legislature could codify this relationship as “reinsurance” to meet the insurance requirements of certain mortgage lenders.
This is not meant to be the only solution to a complex problem; rather, it offers additional data to consider alongside other options and models that must come forward.
Too many Hawaii residents across the state are being impacted by skyrocketing insurance premiums; and the expectation is that this 2025 legislative session will result in safeguards and solutions to the housing insecurity experienced by residents at all economic levels: owners, renters and those seeking shelter due to poverty or “natural” disaster.
