HPIA proposes capital plan to lower insurance premiums in high-risk lava zones

In a recent meeting of the Senate Committee on Commerce and Consumer Protection in Hawaii, critical discussions unfolded regarding the state of property insurance, particularly in high-risk areas like Puna. As the committee members gathered, the atmosphere was charged with concern over the adequacy of insurance coverage for homes in regions vulnerable to natural disasters.

One of the key points raised was the current maximum coverage limit of $450,000 under the Hawaii Property Insurance Association (HPIA). A senator expressed frustration, noting that this amount is insufficient for rebuilding homes, especially given the rising costs of construction. The senator questioned whether there would be discussions to increase these coverage limits, highlighting the disparity between the insurance offered and the actual value of homes in the area. In response, HPIA representatives acknowledged that discussions had taken place but indicated that the board had been hesitant to raise limits until a recent rate increase was approved.

The conversation then shifted to the financial needs of HPIA, with representatives requesting an initial capital base of $20 to $50 million to launch a new commercial product. This funding is intended to help the organization manage risks associated with insuring properties in high-risk zones. The representatives emphasized the importance of having sufficient capital to absorb potential losses, especially as they expand their coverage to include more buildings and higher insured values.

Concerns were also raised about the sustainability of insurance premiums for existing policyholders. With many current policies averaging around $4,500, there is apprehension that the introduction of new, potentially lower-cost policies could lead to increased financial strain on existing customers. The committee members expressed the need for a balanced approach that would not only attract new customers but also protect the interests of those already insured.

As the meeting progressed, the discussion turned to the methodologies used for determining insurance premiums, particularly in relation to volcanic activity. HPIA representatives explained that, due to the lack of predictive models for lava flow, premiums are currently based on historical data. This reliance on past events raises questions about the adequacy of coverage and the potential for systemic underinsurance in the event of future disasters.

The meeting concluded with a call for ongoing dialogue about the challenges facing property insurance in Hawaii. As the committee members left, the urgency of addressing these issues was palpable, with many recognizing that the decisions made today will have lasting impacts on the safety and financial security of residents in high-risk areas. The path forward remains uncertain, but the commitment to finding solutions is clear.