Hawaii’s governor is considering a new insurance program as extreme weather raises risk factors

The challenges facing Maui homeowners in the wake of the wildfires have raised concerns that insurers may consider the island state too risky.

The aftermath of the Aug. 8 wildfires in Maui may prompt the state to create a new insurance program.

Natural disasters such as volcanic eruptions and increasing wildfires are contributing to an economic landscape where insurers may feel the risk is too great to do business here, Gov. Josh Green said Tuesday.

“I’m told this is going to blow up as an issue in the coming months,” Green said on Hawaii News Now’s “Spotlight” program.

Green proposed the idea of ​​a model insurance program to help solve this problem.

About 2,000 buildings — many of them homes — were destroyed in the Aug. 8 wildfire that swept through Lahaina. (Nathan Eagle/Civil Beat/2023)

It’s not a new proposition. Green mentioned it last year in an interview with HNN after his election, saying it could be a use of funds coming from a proposed environmental “green tax” that would charge visitors to come to Hawaii.

He raised the idea again Tuesday in the context of insurers raising costs now that Hawaii may appear to be a riskier place to insure.

His appearance on HNN came Tuesday afternoon after he summed up his first year in office in a 15-minute speech that was streamed online. Green declined an interview request after the speech.

Insurance insurance model

Banks often require homeowners insurance before approving a customer’s mortgage. This means that if the cost of insurance skyrockets, people who want to get a mortgage will be forced to pay more – and if they can’t afford the insurance, they won’t be able to get a mortgage at all.

This would have a cascading effect on the real estate market.

Fewer qualified buyers means it will be harder to sell, reducing demand. If the demand for housing decreases but the supply of housing remains the same, housing prices will fall.

And the only buyers who can benefit from these lower home values ​​would be people who can afford high insurance payments.

Green worries about that exact scenario happening in Hawaii, given the slew of natural disasters and rising seas that threaten homes here and make the state a riskier place to insure.

“We may have to create our own insurance product, which is often called the ‘underwriting model,'” Green said.

This type of insurance is essentially when a large private company creates its own in-house insurance subsidiary. Often this is because the company has a hard time getting insurance that is both specific and affordable to its needs.

Green’s proposal would have the state do something similar.

Economist Paul Brubaker is skeptical. It’s unclear exactly how Green’s proposal would work, but self-insurance is a model typical of the private sector, where the government’s role is simply to write a statutory exemption allowing these types of insurance subsidiaries to exist, he said.

Gov. Josh Green praised the accomplishments of his first year in office. (Screenshot/Facebook Admin)

Brubaker agrees that Hawaii will likely experience a gap in insurance coverage where insurers will pull out of the state. But he said they will eventually come back at some point when the environment is right for them and when they update their risk calculations enough.

“The sooner you activate that gap — right, that gap — between the date the last insurer leaves and the date the first insurer sees an opportunity to come in and get first-mover advantage,” the better, he said. .

It’s the government’s job, Brubaker said, to close that gap as much as possible by reducing risk and making it attractive for insurance companies to “come in and thrive” in Hawaii again.

“Either way, I’m going to have to find some resources,” Green said on HNN. He added that the insurance model would likely require legislative support, as that would mean setting aside funds to support it.

Speech on the occasion of the anniversary

The governor’s address reflected on several events of the past year.

He mentioned a new contract with the state teachers union that would raise starting salaries from about $38,000 to about $50,000 and top-level salaries from about $93,000 to about $101,000 over four years.

Green also touted his new loan forgiveness program for health professionals and a program to house homeless people in tiny home villages called kauhale.

However, he was light on specifics about one of Hawaii’s most talked-about issues.

Since Aug. 8, much of the state’s resources have been focused on rebuilding Maui after a wildfire that killed at least 100 people and destroyed Lahaina.

Last month, Green announced a $150 million recovery fund for the families of the fire victims — but it’s still unclear where that money will come from.

The fund will be a joint venture of the state, Kamehameha Schools, Hawaiian Electric Co. and Maui County, but so far Green has not announced how much money the state will contribute.

His next update on Maui’s recovery will likely happen in the next week or so, his press office said, but an exact date has not yet been set.

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