Raising Cane
By Rob Perez
Sunday, April 8, 2001
THE STATE'S decision last year to exit the hurricane insurance business is helping a new company become a powerhouse in the industry. A whirlwind of
insurance worriesBut it also has the state's top insurance regulator expressing "the gravest of reservations" about the company's ability to weather a major hurricane strike in a densely populated area here.
By year's end, Zephyr Insurance Co. is expected to be the dominant carrier in Hawaii for providing hurricane coverage -- not bad for a company that wasn't even writing policies here a year ago.
Zephyr's growth is being fueled by the expiring policies leaving the Hawaii Hurricane Relief Fund, the state agency formed to solve an insurance-availability crisis following Hurricane Iniki's devastating hit on Kauai in 1992.
Zephyr is getting many of those post-fund policies, signing up customers whose basic home insurance carriers opted not to offer hurricane coverage.
One state projection, described as too optimistic by Zephyr, has the company controlling as much as 46 percent of Hawaii's hurricane insurance business by December. Getting even close to that share in such a short time would be remarkable for any new player.
State Insurance Commissioner Wayne Metcalf says he has "the gravest of reservations" about allowing a thinly capitalized company like Zephyr to take on so much of the hurricane risk in the state.
Zephyr's capital base of $11 million compares with the fund's roughly $190 million cash reserve, Metcalf said.
Zephyr, however, says it has adequate capital and reinsurance to handle projected losses from a hurricane even greater than Iniki."We have some of the largest and most financially sound reinsurers protecting our insureds," said company spokeswoman Jeanette Caldeira.
There's another twist to this story, one that raises questions about a possible conflict of interest.
On July 6, 2000, the HHRF board approved the plan to stop writing hurricane policies as of Dec. 1, 2000. The resignation of the board's executive director, Amori Ogata, took effect the day after that meeting.
He then joined Zephyr as an executive vice president.
Even if Ogata didn't advocate the fund's exit from the insurance market, as HHRF officials say, the fact that he quit the agency and then joined a company benefiting from the fund's exit creates the appearance of a conflict.
Officials with the HHRF dispute that notion. They note that Ogata had no role in the decision to stop writing policies. They also note the fund was supposed to eventually go out of business anyway, just as it was designed to do once the insurance crisis abated.
A phone call to Ogata seeking comment was referred to Caldeira, who said Ogata's employment wasn't discussed with the fund's board. Caldeira also said Ogata is not involved in any regulatory or government activities and has had no dealings with the HHRF since joining Zephyr.
"Zephyr is a private company based in Honolulu (and) has attempted to hire the best management team available so that it can be an effective competitor in the Hawaii marketplace," Caldeira said.
Officials at the state Ethics Commission, commenting only in general terms, said a state employee within a year of quitting is prohibited from getting paid to represent another person or business on a matter in which the employee participated as a state worker. The former state employee also is banned from providing paid representation on matters involving official action from his or her former division.
The officials would not comment on the specifics of Ogata's case.
Regarding Zephyr's coverage capability, Metcalf said the company clearly meets the state's minimum requirements. But Metcalf questions whether Zephyr would be able to cover losses if a storm of Iniki's intensity (about 140 mph winds) or greater strikes a densely populated area like Leeward Oahu.
The company, however, is not required to have that kind of capability.
"I have the gravest of reservations, but there's not a lot I can do about it," Metcalf said.
Lloyd Lim, acting executive director for the relief fund, said no carrier is in a position to fully cover losses in a worst-case scenario. Regulators must make judgment calls on what is adequate, he added.
Zephyr is writing hurricane insurance for customers who have their basic homeowner's coverage with carriers such as Allstate, TIG and Island Insurance. Several other carriers, including State Farm, offer hurricane coverage as part of their overall homeowner policies.
After questions arose about the issue, Metcalf in November asked his fellow HHRF board members to reconsider their July decision and defer getting out of the insurance business until later this year.
That way the Legislature, which created the fund, would be able to decide the public policy issue of when the fund should stop writing policies, Metcalf said.
Lim, though, said the board by law clearly had the authority to make the call. He also noted that the availability crisis had abated.
Given the concerns of the state's top insurance regulator, the prudent action would have been to defer action.
Star-Bulletin columnist Rob Perez writes on issues
and events affecting Hawaii. Fax 529-4750, or write to
Honolulu Star-Bulletin, 500 Ala Moana Blvd., No. 7-210,
Honolulu 96813. He can also be reached
by e-mail at: rperez@starbulletin.com.
