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The Insurance Squeeze

Hawaii’s condominium insurance market is currently in a state of crisis, with skyrocketing premiums and the dwindling availability of hurricane insurance. Since condominiums make up about a quarter of Hawaii’s housing, this is creating serious financial challenges for both homeowners and renters.



New Legislation


In response, lawmakers are pushing for a bill designed to stabilize the insurance market. The proposal involves raising taxes on short-term vacation rentals and reinstating a mortgage recording fee, with the funds directed toward "insurers of last resort" such as the Hawaii Property Insurance Association (HPIA) and the Hawaii Hurricane Relief Fund (HHRF).


This legislation is especially timely, as many condo owners have been hit with dramatic increases in insurance costs. In some cases, premiums have doubled or even tripled, and deductibles have soared due to a tightening market. Older buildings, which often suffer from aging plumbing issues that lead to frequent water damage claims, are particularly problematic for insurers. This has caused deductibles to jump from as little as $10,000 to as high as $250,000 per unit in certain properties.


Hurricane Insurance


Another major concern is hurricane insurance. Despite the fact that Hawaii hasn't been directly hit by a hurricane since Iniki in 1992, mortgage lenders still require homeowners to carry hurricane insurance. Unfortunately, the cost of this insurance has risen sharply. Historically, condo complexes carried 100% hurricane coverage to fully protect against storm damage. But with the increase in premiums, many buildings—some even brand new—are opting for less than full coverage.


Impact on Home Sellers


This reduced coverage has a significant ripple effect. Many mortgage lenders are now refusing to finance units in buildings that don’t have 100% hurricane insurance. This makes it incredibly difficult for potential buyers, especially first-time and middle-class buyers who rely on mortgages, to purchase these condos. As a result, many properties are only accessible to cash buyers, which dramatically reduces the pool of potential buyers and makes it harder for current owners to sell.


Potential Solution


The bill aims to tackle these challenges by expanding the roles of the HPIA and HHRF, ensuring that basic insurance remains available to those struggling to find coverage through private insurers. While the legislation is not expected to immediately lower premiums or deductibles, it offers some hope by keeping insurance accessible and potentially more affordable. The plan would be funded by increasing the transient accommodation tax on vacation rentals and reintroducing a fee for recording mortgages, creating a financial buffer to support these essential insurance programs.


While this bill is a step in the right direction, it will take time to pass and implement. For condo owners considering selling, waiting around for legislative solutions might not be the best option. Now is the time to consult with an experienced real estate professional and explore your options. Reach out and let's talk story!


Here's a link to an article in #HonoluluCivilBeat on the topic.


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