Revival of state hurricane fund considered

Officials are worried about dwindling insurance options

Senate President Robert Bunda is considering a call to revive the state's Hurricane Relief Fund to administer an insurance program for homeowners.

The Hawaii Insurers Council held an emergency meeting Monday to address the shrinking options for getting hurricane insurance in Hawaii.

Hawaii Insurers Council spokesman John Schapperle, the president and chief operating officer of Island Insurance Ltd., said there is a national problem with the reinsurance market -- the firms that back up the claims paid by insurance companies.

"What has happened is the industry has constricted and there are increases in pricing," Schapperle said.

Bunda (D, Kaena-Wahiawa-Pupukea), an independent insurance broker and former banker, said yesterday that local industry officials are looking at the cost of providing hurricane insurance. There are concerns that firms are limiting the sale of hurricane insurance, he said.

Zephyr Insurance Co. announced Monday that it would not accept new hurricane policies for single-wall construction homes built before 1981 unless they have hurricane clips to meet 1993 and 1994 building codes.

Although the new restrictions are only for new insurance policies, Zephyr said it is limiting insurance because of the devastating hurricanes in the Gulf of Mexico and along the Atlantic.

Also, Hawaii Insurance & Guaranty (HIG) had its bond rating downgraded, causing insurance agents to tell clients to move their business to other firms. This has added to the worries about the industry, Bunda said.

"On the mainland, their bond rating has been downgraded and as a result, while HIG is doing good here, on the mainland it is floundering," he said. "The question is what happens to the policies written if a hurricane comes."

J.P. Schmidt, state insurance commissioner, acknowledged that local agents "are moving customers to other insurers for hurricane insurance."

But with Zephyr limiting its new policies, Bunda said he fears there just won't be enough hurricane insurance for all homes.

"This has a domino effect. The banks also get into the act," Bunda warned. If a bank or mortgage holder requires hurricane insurance and the property owner cannot get insurance, then the bank may force the homeowner to buy high-priced insurance.

"Many years ago, when we activated the Hurricane Relief Fund, it was because the homeowners were getting their bills and the premiums were jacked up a huge amount," Bunda said.

Schmidt said he doesn't like the idea of reactivating the Hurricane Relief Fund because it would require the state to sell insurance to all policyholders if a specific company sold its hurricane insurance through the relief fund.

"It wouldn't be like picking up just a couple of people here or there. The relief fund law is not set up to provide help for the problem we have," Schmidt said.

"Whether we want to revise the statute to address these questions is also a serious question and I'm not sure we want to do that," he added.

Right now, the relief fund maintains a balance of $182 million. The fund was created by the Legislature in 1993, following disastrous losses suffered by homeowners because of Hurricane Iniki a year earlier. With more than a billion dollars in claims, property insurance companies either folded, left the state or stopped issuing new policies.

Speaking for the Insurers Council, Schapperle said the industry is starting to talk to members of the Legislature about possible solutions and said he also wasn't sure if reactivating the hurricane relief fund would be the best course.

Schapperle acknowledged that island consumers are facing a limited number of choices for insurance today.

"State Farm is writing now, but there are limits and the market is quite limited. It is basically for a new home in the right area," Schapperle said.

But Schmidt said he believes the problems may ease in the next two weeks. Either HIG may get a promise of financial backing or there may be additional insurance companies coming into the market, he said.

Korean firm Dong Bu Insurance is setting up to sell insurance in Hawaii, according to Schmidt. "They are looking to write homeowners and hurricane insurance," he said.

"Again, all this is a question of timing. ... We may have this matter resolved in a week or two. We want to take steps that will be effective," Schmidt said.