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Condo Owners Are Starting To Feel The Pain From Rising Insurance Costs

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Condo Owners Are Starting To Feel The Pain From Rising Insurance Costs

May 23, 2024 | 8:32 am ET
By Stewart Yerton/Civil Beat
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Policymakers are struggling to find solutions to the challenge facing some condo owners who are seeing their insurance premiums skyrocket. (Cory Lum/Civil Beat/2019)
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Policymakers are struggling to find solutions to the challenge facing some condo owners who are seeing their insurance premiums skyrocket. (Cory Lum/Civil Beat/2019)

To James Clemens, the 2024 insurance bill for the Terraces at Manele condo association was shocking: a premium increase of more than 40%, to $109,000 from $69,000 the previous year. 

The condo board still is trying to decide how to cover the cost increases, Clemens said, but condo owners inevitably will have to shoulder the costs somehow. For the average owner in the complex of 26 free-standing condos on Lanai, it could mean an increase of $600 on their monthly association fees, Clemens said. 

“It’s a tremendous increase for everybody,” said Clemens, who serves as president of the condo association as well as an area homeowners’ association governing three other condo associations and several single-family homes.

An 80-year-old retired contractor from Philadelphia, Clemens and his wife, Sally, first bought a home on Lanai in 1995. Now the couple splits their time between Lanai and Oahu, where they own another condo in Kakaako. Clemens said he’s fortunate that the couple can afford to pay the increase. Other retirees on fixed incomes might not be so lucky.  

“This is going to hit everybody,” he said.

He’s right. Anecdotes abound of premiums doubling or tripling across Hawaii. A House bill introduced last session to address the rising premiums cited the annual premium of one Waikiki condo rising to $1.2 million from $235,000 the previous year. Deductibles have also skyrocketed. 

The House bill died, and so did its Senate companion. But policymakers are regrouping. Gov. Josh Green earlier this month announced a new Climate Advisory Team to stabilize the insurance market.

House Speaker Scott Saiki is scheduled to join insurance and banking executives to discuss the condo insurance issues during a webinar hosted by the Hawaii Economic Association on Thursday.

“This is going to be with us long-term,” said Seth Colby, a Hawaii economist moderating the panel. “This is not specific to Hawaii.

“As climate change takes hold, risk is going to change, and prices need to reflect those risks,” Colby added.

Hawaii Has Joined High-Risk Profile States

Hawaii is hardly the only state with an insurance market spinning out of control. California remains gripped by an insurance crisis, despite numerous steps taken by government officials and private property owners, the news organization CalMatters reported earlier this month. 

And it’s not just big coastal and wildfire-prone states like California and Florida experiencing turmoil. The online insurance marketplace Insurify earlier this year analyzed home price and insurance premium data from 50 states to show how climate catastrophes were driving overall housing prices. Oklahoma and Nebraska also made Insurify’s list of 10 least affordable states for insurance based on factors like home prices, wage growth and insurance premium increases from 2022 to 2023.

Still, for Hawaii homeowners, the trend in the islands has been stunning. Earlier this year, Island Insurance, the state’s largest locally owned and operated property and casualty insurer, discontinued renewing hurricane insurance for its policyholders. Island Insurance executives declined to comment for this article but issued a statement saying hurricane insurance was a small part of the company’s portfolio.

“At our peak, we wrote roughly 270 homeowners policies with hurricane (out of over 27,000 total homeowners policies),” the company said. “Island was never a significant insurer of hurricane coverage for homeowners. The cost of reinsurance for such a small portfolio was prohibitive so we discontinued this coverage.”

Island’s dropping hurricane coverage might have been an insignificant loss to Hawaii’s insurance universe, but it was a striking sign of the times from a long-time, kamaaina company known for civic engagement.

Dale Bordner is a Honolulu real estate agent who has seen a striking change in Hawaii’s risk profile.

“The Maui fires put us in a new category with insurance companies,” said Bordner, who recently attended the National Association of Realtors’ legislative conference in Washington, D.C., where insurance issues were a hot topic. “It all of a sudden put us in a high-risk category with California and Florida.”

The impact is extending through the condo economy to affect not just owners, but also potential buyers and sellers. 

Generally, a condo complex in the past would have a master hurricane policy covering 100% of the cost to replace the property in the event of a catastrophic hurricane. But because of rising premiums, many buildings have opted for less than 100% coverage. 

The problem with that approach is that the federal mortgage companies Fannie Mae and Freddie Mac require condo associations to have hurricane insurance covering 100% of potential losses, lenders say. Mortgage companies originating loans might want the option of selling the mortgages to the federal loan companies, so they won’t lend to people trying to buy in such buildings — even if the buyers are credit-worthy.

Lila Mower is a longtime advocate for condo owners who also worked for years as a banker. She said some banks that don’t plan to offload their mortgages often have been willing to provide loans for condos in buildings with less than 100% coverage. But she said banks often limit the number of such loans in their portfolios to reduce their risks. 

The result is that mortgages can be hard to find. 

“It varies from lender to lender,” Bordner said. 

It’s enough of a challenge that one recent buyer had to reach out to two different lenders on the mainland to find a loan after striking out in Hawaii, Bordner said. She reckons it could take a year or more for the market to settle. 

“It’s definitely not an overnight answer,” she said. 

Green’s Climate Advisory Team is formulating plans. When announcing the team, Green said its mission includes mitigating “financial burdens from the rising consequences of climate change.” Team members include the investment bank Ducera Partners LLC and the Hueston Hennigan and O’Melveny & Myers law firms.  

The team’s chairman, Chris Benjamin, declined an interview request but in a statement said the team hopes to be able to share draft proposals by September.

“Governor Green tasked the Climate Advisory Team with exploring solutions to the challenge of insuring against future climate-related disasters,” said Benjamin, a former president and chief executive of Alexander & Baldwin. “The team is in the process of identifying and engaging key stakeholders who are essential to address this challenge.”

Meanwhile, for homeowners, bills are mounting. Adding to concerns at Manele Bay, Clemens said he has heard his condo association’s carrier, DB Insurance, may quit issuing coverage for wood frame homes altogether.

DB executives didn’t respond to a request for comment.

Chason Ishii, president of the association’s insurance broker Atlas Insurance referred questions to Atlas’s AOAO unit manager, Elaine Panlilio, who did not respond.

Clemens said he is glad government officials are aware of the problems and hopes they will act quickly. 

“I know Green knows about it,” Clemens said. “It’s going to kill Hawaii.”