Tuesday, December 12, 2000
Keep hurricane funds
for next emergencyThe issue: Governor Cayetano has proposed refunding $175 million left in the Hawaii Hurricane Relief Fund to homeowners.
Our view: Keep the money in the fund for use the next time a hurricane strikes and homeowners' private insurance is canceled again.
THE Hawaii Hurricane Relief Fund was established in 1993 as an emergency measure after Hurricane Iniki, which produced $1.3 billion in damage claims. In the wake of the hurricane, most private insurance companies canceled or refused to renew insurance policies, leaving homeowners here unprotected. The state stepped in to fill the void.
Since then the insurance companies have begun offering hurricane coverage and the state fund is being phased out because it is no longer needed.
When the 2000 hurricane season ended Nov. 30, the fund stopped issuing policies. About 80,000 policies will lapse over the next year. At its peak the fund provided hurricane insurance for 160,000 homeowners.
Currently the fund has $175 million, money in excess of that used to provide coverage through a reinsurance policy and credit line. The law provides that the money remaining in the fund when it closes will be turned over to the state.
Governor Cayetano says that money should be refunded to the homeowners who bought insurance from the fund. He rejects suggestions that the $175 million be used for state employee pay raises or other expenses.
Neither idea makes sense.
The homeowners who bought insurance from the fund are like any other buyers of insurance. They purchased protection for their homes for a specified period. They aren't entitled to a refund if disaster doesn't strike during that period. They certainly weren't promised a refund.
Nor should the state use the money to fund raises for state employees or for other expenses. As Kathryn Matayoshi, director of the state Department of Commerce and Consumer Affairs, commented, "We aren't in this to make money."
There is a better use.
Hawaii has not experienced a hurricane since the Iniki disaster, which undoubtedly helps to explain why the fund has a surplus. But some day another hurricane will surely strike the islands. No one knows when.
Matayoshi noted that a small balance will be kept in the fund in case there is a need to revive it in a future hurricane emergency. "We don't want to be in a position when there is another crisis and homeowners can't get insurance," she explained.
Keeping that $175 million in the fund, rather than giving it back to homeowners or spending it on unrelated needs, would provide a foundation for rebuilding the fund if the need arises. We speak of a "rainy day" fund. The state needs a fund to deal with the prospect that homeowners will again be left without insurance. Fortunately the money is there.
Oil prices declineThe issue: After becoming an issue in the presidential election campaign, oil prices have come down.
Our view: Hawaii motorists will continue to face price fluctuations whatever the outcome of the state antitrust suit against Chevron.
SURGING oil prices became an issue in the presidential election campaign. President Clinton was accused of playing politics by authorizing a release of stocks from the Strategic Petroleum Reserve, which may have benefited Vice President Gore. However, in recent weeks prices have dropped, but too late to affect the election. The price of light, sweet crude futures fell from $36.27 a barrel on Nov. 27 to $28.31 on Dec. 8.
The decline in prices came despite Iraq's suspension of 2.3 million barrels of daily exports -- a price movement that suggested oil markets were well supplied.
Iraq suspended oil exports at the end of November in a dispute with the U.N. sanctions committee over its pricing policy. The committee has since approved a new price formula for Iraq, removing an obstacle to the resumption of Iraqi exports.
Contributing to the price drop were mild autumn weather and an increase in production from non-OPEC countries, especially Mexico and Norway.
Clinton's action in releasing oil reserves may have been a factor as well, although the justification was questionable.
However, there is a chance that prices for crude and heating oil will accelerate during the winter. The International Energy Agency said in its monthly report, "We are not out of the woods yet. Who can accurately predict the weather?"
The IEA noted in its report that world oil production rose 730,000 barrels a day last month, or almost 1 percent, to 78.9 million barrels.
Inventories for the world's largest economies increased in October by 7.6 million barrels a day, or 0.3 percent, to 2.56 billion barrels, the agency said. But inventories are still low by comparison with the previous four years.
Crude futures prices rebounded yesterday after declining over the previous week. January contracts for light, sweet crude jumped 1.06 to $29.50 a barrel on the New York Mercantile Exchange.
The sharp increases in oil prices last summer were a response to cutbacks in production made after prices had earlier plunged to uneconomic levels. The increases seem to have served the purpose of boosting production.
CONTINUED fluctuations in oil prices must be expected as the market adjusts to changes in production and demand. Continued high prices should encourage interest in improving fuel economy -- although the popularity of sports utility vehicles has yet to be affected.
Meanwhile Hawaii awaits the outcome of the antitrust case against Chevron on charges of fixing gasoline prices in the islands. Even if the state wins, however, Hawaii motorists will still be at the mercy of world market developments.
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