Condo insurance woes strike Hawaii

Insurance costs are skyrocketing – sometimes by 1,000%

Condo insurance woes strike Hawaii


By Jen Frost

As Hawaii’s Governor wages war on Maui short term rental unit investors, there’s an insurance sting in the tail for condo owners and would-be buyers across the state as it wrestles with property insurance challenges.

Insurance costs for condo complexes have skyrocketed by anything from 100% to 1,000% since the devastating August wildfires, according to Sue Savio, president and owner of Insurance Associates and a past president of the Hawaii Independent Insurance Agents Association. 

Take one Maui complex, where unit owners have been told their AOAO’s insurance could be set to rise from less than $150,000 per year to more than $1 million.

And it’s not just fire-ravaged Maui that’s affected by insurance price hikes. Apartment owner associations (AOAOs) across the state are feeling the pressure of spiking costs. Most will not have budgeted for the insurance hit, and hundreds of condo associations are already underinsured for hurricane risk. Federal mortgage lenders Fannie Mae and Freddie Mac both require 100% windstorm coverage for family units, so underinsurance poses a challenge for residents.

Insurance cost spikes are set to have a run-on impact on property management fees, while some AOAOs have found themselves raiding reserves.

“It’s a mess, it’s extremely painful,” Savio said. “Some [AOAOs] are taking from reserves, but then they have to pay back reserves within a certain timeframe.”

These AOAOs are likely to find themselves facing a knock-on financial effect.

“If you take it from reserves this year, you’re still going to have to raise maintenance fees next year to cover not only the last year’s premium, but the premium going forward, plus the money you took from reserves,” Savio said.

Meanwhile, individual owners have been struggling to secure cover for their units as prices rise and insurers rethink their appetite. Wildfire and other climate impacts – wind chief among them – are both biting, as are US and worldwide inflationary and reinsurance trends.

“There’s a lot of individual unit owners saying ‘I can’t find an HO-6 [condo homeowners insurance], I’m going to have to sell my unit – I can’t own something that’s not covered’,” Savio said. “[We’ve] yet to see an exodus of people putting things up for sale because it’s still new, but who knows what will happen in the future?”

For high-rise condo complexes, the insurance problem has been compounded by a marketplace that was already slim pickings with just three players in the space having offered cover for new association business in recent years. 

Insurers have limited their appetite as they assess the Maui fire and climate impact, Savio said. This is pushing business out of the standard market and into pooling arrangements and the surplus lines market.

One key player, DB Insurance, is said to have moved to trim down its book by as much as 30%. A representative for the insurance company did not respond to requests for comment.

The other standard market sources of high-rise condo capacity are Allianz’s Firemans Fund and Tokio Marine’s First Insurance Company of Hawaii (FICOH).

A representative for FICOH told Insurance Business that it remains an “active market” for condo business in the state. FICOH, which has a large portfolio of master policies and residential units, continues to write new and renew condo policies, according to the spokesperson.

“In response to market challenges, our approach has not been to change our appetite or reduce capacity, but rather to take the necessary rating actions to remain a stable property market for Hawaii customers long-term,” the spokesperson said.

The FICOH spokesperson pointed to rising reinsurance and loss costs as a driver of increased premiums. “That is the reality,” they said. Allianz did not immediately respond to a request for comment.

Condo complex insurance costs have been rising across the US, boosted by climate change, inflation, liability losses and reinsurance costs, as per the Insurance Information Institute (Triple-I).

The post-fire insurance and housing shortage impact continues to be keenly felt by residents. And for some mainland property investors, the math just isn’t adding up anymore.

In numbers: The devastating impact of Maui’s 2023 wildfires

Insurance challenges come as Hawaii’s Governor is engaged in a showdown with short term rental unit owners.

Hawaii Gov. Josh Green on Tuesday unleashed a blistering attack on short term rental unit investors. Maui’s devastating wildfire uncovered a “clear truth”, he told reporters. That truth? “We have too many short-term rentals owned by too many individuals on the mainland, and it is b***s***,” Green said as he unveiled a package of measures poised to push vacation lets out, longer term housing in.

Tension between mainland property owners and Hawaii’s residents is not a new thing, but it has intensified since devastating wildfires tore through Maui last August. Before the fire burned its trail of destruction, approximately 30,000 of the state’s 565,000 housing units were listed as short-term rentals according to UHERO figures. That’s roughly 5% dedicated to tourists. But, according to the Governor, the true proportion could be even higher.

“We’ve got 89,000 short-term rentals in the state of Hawai’i of which only 14,000 are legal,” Green said on Tuesday.

A 24 month plan, set to kick off in fall, will see a tax amnesty granted to short term rental unit owners that sell to locals or convert to a long-term arrangement.

“The Governor will sign into law any bill the Legislature sends that will help move short-term rentals and vacant investment properties owned by non-residents into our local housing market — to increase supply and bring down prices for our families,” a spokesperson for the Governor’s Office said.

Those local families, though, will also be facing an insurance affordability challenge. The state has made some moves to start tackling this.

“In preparation for a potential decline in the availability of insurance, discussions are ongoing to expand the Hawaii Property Insurance Association (HPIA) and its capacity to take on new business and to restart the state-managed Hawai’i Hurricane Relief Fund to underwrite hurricane coverage,” said a spokesperson for the state of Hawai’i Department of Commerce and Consumer Affairs. “The Hawai’i DCCA Insurance Division also continues to actively work with insurers to maintain availability of coverage and affordable options in compliance with statutory mandates.”

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