Condo Owners Are Beginning To Suffer From Increasing Insurance Premiums

Condo Owners Feel Pain From Rising Insurance Costs | Image Credit:
Condo Owners Feel Pain From Rising Insurance Costs | Image Credit:

An advisory group headed by Governor Josh Green was established to explore strategies for stabilizing the market, which has been severely damaged by climate-related disasters.

James Clemens found it astonishing that the insurance cost for the Terraces at Manele condo association in 2024 was $109,000 instead of $69,000, a more than 40% increase in rate.

According to Clemens, the condo board is still attempting to determine how to pay for the cost hikes, but condo owners will eventually have to bear the expense in one way or another. According to Clemens, the typical owner of the 26 free-standing condominiums on Lanai may see a $600 rise in their monthly association dues.

Serving as president of both the condo association and the local homeowners’ organization that oversees three further condo associations and many single-family houses, Clemens said, “It’s a huge boost for everybody.”

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Clemens, an 80-year-old retired Philadelphia carpenter, and his spouse Sally initially purchased a house on Lanai in 1995. These days, the pair divides their time between Oahu, where they own a second property in Kakaako, and Lanai. The fact that the pair can afford the hike, according to Clemens, is lucky. Not everyone who retires on a fixed income will be as fortunate.

He declared, “This is going to impact everybody.”

He is accurate. There are several accounts of premiums increasing or doubling throughout Hawaii. The yearly cost for a single Waikiki apartment increased to $1.2 million from $235,000 the year before, according to a House measure that was submitted during the most recent session to address the growing rates. The amount of deductibles has also surged.

Both the House and Senate versions of the measure were killed. However, policymakers are reorganizing. To stabilize the insurance market, Governor Josh Green earlier this month announced the formation of a new Climate Advisory Team.

On Thursday, the Hawaii Economic Association will conduct a webinar in which House Speaker Scott Saiki will speak with executives from the banking and insurance industries about the problems surrounding condo insurance.

The session was moderated by Hawaii economist Seth Colby, who declared, “This is going to be with us long-term.” This does not only apply to Hawaii.

Colby said, “Risk will shift as climate change takes root, and pricing need to reflect those risks.”

Hawaii is Among the States with a High-Risk Profile.
There are several states with insurance markets that are out of control, not just Hawaii. The news outlet CalMatters revealed earlier this month that despite various efforts by public servants and private property owners, California is still experiencing an insurance issue.

Not just large coastal and wildfire-prone states are going through turbulence, though. Earlier this year, the online insurance marketplace Insurify examined data on insurance premiums and property prices from all 50 states to demonstrate how climate disasters were influencing housing prices nationally. Based on variables like housing costs, salary growth, and insurance premium hikes from 2022 to 2023, Insurify’s ranking of the ten least expensive states for insurance coverage included Oklahoma and Nebraska.

Nevertheless, the trend in the islands has been astounding for homeowners in Hawaii. The biggest locally owned property and casualty insurer in the state, Island Insurance, stopped renewing its subscribers’ storm coverage earlier this year. Executives at Island Insurance released a statement stating that storm insurance was a minor portion of the company’s offerings, but they declined to speak for this piece.

Out of approximately 27,000 homeowners insurance, the business estimated that at its height, it had written about 270 policies with storm coverage. “Island never played a big role in providing homes with storm insurance. We stopped this coverage because the cost of reinsurance for such a tiny portfolio was too high.

Although Island’s decision to discontinue storm coverage may not have had a big impact on Hawaii’s insurance market, it was a stark indication of the times from a venerable kamaaina business that was well-known for its community involvement.

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Real estate realtor Dale Bordner of Honolulu has noticed a noticeable shift in Hawaii’s risk profile.

Bordner, who recently visited the National Association of Realtors’ legislative conference in Washington, D.C., where insurance concerns were a hot subject, said, “The Maui fires put us in a new category with insurance companies.” “It suddenly placed Florida and California in the high-risk list.”

The effects are being felt not just by the owners but also by prospective buyers and sellers inside the condo market.

In the past, a master storm policy would often cover 100% of the cost to repair the property in the case of a devastating hurricane at a condo complex. However, a lot of buildings have chosen to have less than 100% coverage because to growing rates.

That strategy is problematic because, according to lenders, condo associations are required by government mortgage firms Fannie Mae and Freddie Mac to get storm insurance that covers all possible damages. Even if a buyer is creditworthy, mortgage businesses that originate loans may refuse to lend to them in order to retain the possibility of selling the mortgages to government lending companies.

Lila Mower, a former banker for many years, has long been a champion for condo owners. According to her, some banks have been ready to finance condominiums in buildings with less than 100% coverage even if they don’t intend to sell their mortgages. To lower their risks, she added, banks frequently restrict the quantity of these loans in their portfolios.

Consequently, it might be challenging to get a mortgage.

According to Bordner, “it varies from lender to lender.”

According to Bordner, the difficulties are so great that one recent buyer had to contact two separate lenders on the mainland after failing to get a loan in Hawaii. According to her, it can take the market a year or longer to stabilize.

She remarked, “It’s obviously not an overnight answer.”

The Climate Advisory Team at Green is developing strategies. Green stated that one of the team’s goals in introducing the group is to lessen “financial burdens from the mounting repercussions of climate change.” The legal firms Hueston Hennigan and O’Melveny & Myers, as well as the investment bank Ducera Partners LLC, are members of the team.

Chris Benjamin, the team chairman, said in a statement that the group aims to be prepared to provide draft recommendations by September, but he denied an interview request.

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Benjamin, a former president and chief executive of Alexander & Baldwin, stated that Governor Green assigned the Climate Advisory Team the responsibility of investigating ways to meet the insurance problem associated with potential climate-related calamities. “To solve this difficulty, the team is in the process of identifying and engaging important stakeholders.”

Homeowners are facing increasing fees in the interim. Clemens stated he has heard that DB Insurance, the condo association’s insurance provider, may stop providing coverage for wood-frame properties entirely, which would increase worries at Manele Bay.

A request for response from DB executives was not answered.

Elaine Panlilio, the manager of Atlas’s AOAO section, took a call from Chason Ishii, president of the association’s insurance broker Atlas Insurance, but she declined to speak.

Government representatives should move swiftly, according to Clemens, who expressed gratitude that they are aware of the issues.

“I’m certain Green is aware of it,” Clemens remarked. “It will destroy Hawaii.”


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