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Hawaii lawmakers are seeking to stabilize Hawaii’s condominium insurance market against sharply rising premiums and a declining availability of hurricane insurance that has sent ripples through Hawaii’s housing market.

A Hawaii Senate committee is scheduled on Tuesday to hear a measure that would increase a tax on short-term vacation rentals and reinstate a fee for recording mortgages. The money would go to so-called insurers of last resort to fill a widening gap in Hawaii’s insurance market.

The bill is meant to address a critical issue facing owners of condominiums, which make up about one quarter of Hawaii’s housing stock, according to the . Increasing insurance premiums are raising housing costs in a state where residents already face the .

The measure faced little opposition as it advanced through the House, and it has , from the insurance, financial services and condo management industries as well as some condo associations.

It’s not just that premiums are routinely doubling or tripling, according to anecdotal accounts. Deductibles are also increasing amid a dramatically tightening insurance market, says , an agent with Pyramid Insurance in Honolulu.

“That’s my word for this year: tightening,” Hirai said. “Everything’s tightening up.”

The rising costs are affecting not only property owners but renters as well, said Rep. Adrian Tam, who co-sponsored with Reps. Mark Nakashima and Jackson Sayama and House Speaker Scott Saiki.

“Even if you don’t own a condo, and let’s say you’re renting, it’s going to trickle down to you,” Tam said.

Lawmakers are holding public outreach events to allay concerns. Saiki, Tam, Sen. Sharon Moriwaki and Rep. Scott Nishimoto joined insurance, real estate and banking professionals for a March 12 town hall meeting at McKinley High School to explain what’s going on to anxious residents. Two days later, Tam joined a panel discussion on PBS Hawaii’s program.

Meanwhile, lawmakers have included in the bill a detailed preamble outlining the situation.

According to the bill, the insurance crisis is a statewide issue and is not directly related to the wildfires that destroyed much of Lahaina in August.

One cause of rising rates and deductibles, the bill says, is more mundane: Hawaii has numerous older buildings where aging plumbing has created leaks and significant insurance claims for water damage. As a result, the bill says, insurers have increased deductible amounts from as little as $10,000 per unit, per occurrence, to as much as $250,000.

Hurricane insurance presents another problem. Although Hawaii hasn’t suffered a direct hit from a hurricane since Iniki in 1992, “mortgage lenders continue to require Hawaii homeowners to carry hurricane insurance that can cost two to three times the annual premiums of a conventional homeowner policy,” the bill notes.

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 storm. But because of rising premiums, many buildings have opted for less than 100% coverage. 

And it’s not just outliers opting for less coverage because of the high premiums. As many as 390 buildings, including new high-rise towers in Kakaako, are opting for less than 100% coverage, the bill quotes Sue Savio, , as saying. Savio did not respond to an interview request.

Some Buildings Require Cash Buyers

This lack of coverage has enormous consequences. It’s not simply that condo owners in buildings without 100% coverage face the risk of losses that wouldn’t be fully covered in the event of a catastrophic hurricane. In addition, many mortgage companies won’t provide home loans for condos in such buildings, creating problems for first-time buyers as well as owners trying to refinance mortgages. 

This creates a ripple effect through the economy, Tam said, as people wanting to buy condos simply can’t buy them. For many Hawaii residents, condos are starter homes, he said, a way for people to start building equity in a market where the . Now many condo buildings are on “do not lend” lists, Tam said, making the condos available only to people who can pay cash.

The same problem extends to people who want to sell properties: They have fewer potential buyers if their building lacks 100% coverage. The bill would essentially expand two public entities — the and the Hawaii Hurricane Relief Fund — that serve as “insurance markets of last resort.”

Seniors on fixed incomes and families struggling to get by are also vulnerable to increases, which can get passed on through higher association fees or rents.

The idea, Tam said, is to make sure insurance is at least available. He acknowledged that premiums and deductibles might not drop significantly. But he said costs of insurance from the HPIA and hurricane relief fund would be lower than insurance offered by firms not licensed in Hawaii, which are now filling a gap.

The HPIA is a nonprofit association of licensed insurers in Hawaii, originally created by the Legislature in 1991 to provide basic property insurance for Big Island owners who couldn’t buy insurance because of ongoing volcanic eruptions there. It now provides insurance statewide.

The Hawaii Hurricane Relief Fund was created in 1993 to provide hurricane insurance for properties that couldn’t get coverage after Iniki. The fund quit issuing policies in 2000 after the private market stepped back in, and now interest from the fund is transferred to the general fund, Tam said.

The hope, Tam said, is that the private insurers eventually will step back in as they did after the dust settled following Iniki. In the meantime, the Hawaii Property Insurance Association’s operations would be funded with an increase in the transient accommodation tax rate for vacation rentals. The Hurricane Relief Fund would be capitalized with a mortgage recordation fee.

“This is a societal issue,” Tam said. “I don’t see anyone who isn’t affected by this.”