Hawai‘i Condo Owners Could Benefit From State Plan To Prop Up Insurance Market

Four years ago, when Charles Schmidt and his wife retired to Hawaiʻi, their monthly homeowners association fee at Mākaha Valley Plantation condominium was $550 a month. Since then, the fee has spiked 60% to $880 per month, largely because of rising insurance rates.

For Schmidt, a retired marriage and family therapist from Los Angeles, and his wife Jane Finstrom, a retired school teacher, the increases strain their fixed budget.

“We’re not rich, and it was a place we could afford,” he said of their condo in Waiʻanae. “And all of a sudden — boom, boom, boom — things started going up.” 

Across Hawaiʻi, rising insurance premiums are exacerbating the state’s already severe housing affordability problems, with a convergence of problems poised to make it worse. Even before the wildfire that destroyed much of Lahaina in August 2023, property insurance was getting more expensive for condos.

With approximately 294,000 Hawaiʻi residents living in homes governed by 2,000 condo, townhome and homeowners associations, these insurance coverage woes affect about one in five state residents.

Lawmakers are moving forward with bills this session to create an insurance pool of last resort for Hawaiʻi homeowners, hoping to stabilize the market and at least put a floor on premium prices.

The bill has already passed the Senate with the support of the Hawaiʻi insurance, banking and real estate industries, members of the Maui County Council, AARP Hawaiʻi and some individual condo owners.

The main skeptic seems to be Greg Misakian, a condo activist, Waikīkī Neighborhood Board member and officer with the Kokua Council, an advocacy group for seniors and kūpuna. It now seems a matter of when, not if, Hawaiʻi will follow states like California and Florida by launching a state insurance company to stabilize the market.

“That’s the real question now,” said Hawaiʻi Sen. Jarrett Keohokalole, who sponsored the Senate measure. “How much longer will it take?”

The companion bills are enormously complicated and have changed as they’ve gone through the legislative process. The latest iteration calls for a private contractor to administer the last-resort insurance pool.

A major unknown is how much the state will need to chip in as seed money to shore up Hawaiʻi’s insurance market, although the vision is for the last-resort pools to eventually be self-funded through premiums.

One thing widely agreed upon by industry executives and policymakers is that costs began mounting even before the devastating 2023 Maui wildfire. Concerns about hurricane risk and the shrinking availability of hurricane insurance in Hawai‘i get the most attention.

But rising insurance claims related to water damages as water pipes failed in aging buildings also have spooked the market. The deadly fire at the Marco Polo building in Mōʻiliʻili in 2017 didn’t help. Neither did the complete collapse of the Champlain Tower near Miami in 2021.

Hawaiʻi has just three main carriers writing new master condo policies – Arch Insurance Co., DB Insurance Co. Ltd. and First Insurance Co. – and Arch has scaled back on condo hurricane coverage, said Mike Onofrietti, chairman of the Hawaiʻi Insurers Council, a trade group that supports the measure.

The effect has been a spike in premiums, as many condo associations have had to go to the unregulated – and far more expensive – secondary insurance market to fill in gaps in coverage.

The overall increase in insurance premiums is difficult to quantify. The Hawaiʻi Insurance Commission has no data on premium increases or on the number of Hawaiʻi condos that are under-insured, according to the University of Hawaiʻi Economic Research Organization.

Nationally, the typical cost of homeowner insurance was 13% higher in the fourth quarter of 2024 than in 2023, UHERO reported, citing the federal Bureau of Labor Statistics. The increases have been more acute in areas exposed to climate risk, a bureau working paper found.

Anecdotally, residents have reported multifold increases in condo insurance premiums. For instance, Keohokalole’s bill cites one condo that saw its master insurance policy increase from $235,000 annually to $1.2 million.

All of this has sent ripples through the real estate and banking industries, as condo associations have little choice but to pay the high premiums. Banks generally won’t make loans on underinsured properties, so condo buyers in some cases have to pay cash or not buy. And sellers have a limited pool of potential buyers.

Bill Would Create Two Insurance Lines

The proposal making its way through the Hawai‘i Legislature is to revive two little-used state entities to create two new insurance lines. The existing Hawaiʻi Hurricane Relief Fund was set up in 1993 to provide hurricane insurance in Hawaiʻi following Hurricane ʻIniki, which hurt the hurricane insurance market. The fund quit writing new policies as of December 1, 2000, when the private market rebounded.

Under the proposed legislation, the fund would be refashioned as an insurer of last resort for hurricane insurance, reducing the need for condo associations to buy from the secondary market.

A second component of the legislation would refashion the Hawaiʻi Property Insurance Association, which was established to provide insurance for homes in lava zones, into an insurer of last resort for other types of insurance if the market failed to provide adequate insurance for those areas.

Among those applauding the move is Hawaiʻi’s AARP chapter, which said the tandem insurance lines can stabilize costs for cash-strapped retirees on fixed incomes. The hurricane insurance fund would give more coverage options, and the property insurance pool would buffer Hawaiʻi’s market from “fluctuations and crises,” the organization said in written testimony.

Keohokalole said the hurricane fund currently has $171 million in assets. The property insurance association has about $30 million, Onofrietti said. Additional money would have to come from an unspecified appropriation from the state general fund, which the association would pay back over time with premium revenue, Keohokalole said.

How much seed money the funds would need from the state isn’t clear.

“I don’t want to say it’s completely unknowable, but it’s pretty close,” Onofrietti said about the amount of seed money needed to launch the fund. The industry was willing to work with the state and step in if needed under the bill’s current version.

“If the Legislature told us there’s no money available but you have to figure it out, we’d be willing to do that,” Onofrietti said.

Hawaiʻi Rep. Scot Matayoshi, who sponsored the House measure, said the two refashioned insurance funds would operate separately but in tandem.

“These are two independent bodies, so it depends on what they decide to do,” he said.

Funds In California, Florida Face Challenges

Even if the insurance funds get launched with adequate capital, there’s a question of maintaining adequate funding in an age of mass catastrophes attributed to climate change.

In California, following the devastating Los Angeles fires this year, homeowners collectively are facing the possibility of having to help bail out the Golden State’s insurer of last resort, the news organization Cal Matters reported.

“After saying it would run out of funds by March, California’s last-resort fire insurance provider will impose a special charge of $1 billion on insurance companies — which will in turn pass the costs along to homeowners — the first such move in more than three decades,” the nonprofit news organization said.

Florida Gov. Ron DeSantis also has raised questions about the ability of the state’s Citizens Property Insurance to remain solvent in the face of hurricanes.

Misakian — who is first vice president of the Kokua Council, which frequently weighs in on condo issues — said the plan won’t solve Hawaiʻi’s problems. Although the legislation would create two insurance lines, Misakian said the focus is hurricane insurance, which is only part of the problem. Rising condo insurance costs, he said, often have more to do with claims related to water damage and problems arising from poor management.

“I don’t see how this is going to work,” he said.

Owners Say They Need Help

Others are more optimistic. The Hawaii Green Infrastructure Authority, AARP Hawaii, Hawaii Bankers Association, Hawaii Credit Union League, Hawaii Financial Services Association, Hawaii Insurers Council, Hawaiʻi Association of Realtors and Mortgage Bankers Association of Hawaii all testified in support of the bill.

So did a number of individual condo owners, including Jessica Herzog, director of the Mākaha Surfside condo complex on Oʻahu’s leeward side. She paid $225,000 in 2021 for a one-bedroom, 400-square-foot condo that she shares with her son. She’s seen the annual insurance premium for her unit double to $300 from $150 over the past year alone.

And the premium on the condo complex’s master insurance policy increased 7% this year to approximately $500,000, she said. She’s worried further premium increases will drive up association fees — which rose $50 this year on Herzog’s unit to $650 — even further, undermining the allure of one of Oʻahu’s rare, truly affordable beachside properties.

Herzog’s testimony called for numerous amendments to increase transparency, accountability and oversight of the proposed programs to ensure they didn’t benefit the insurance industry at the expense of residents. But “as a single parent and condo owner grappling with the financial pressures of a marketplace designed for the affluent,” Herzog said she supported the proposal overall.

“This measure is vital,” she said, “as it promises to mitigate the skyrocketing insurance costs that myself and my neighbors face due to increasingly limited insurance options.”