Emily Naeole Working on Lava Zone 1 & 2 Insurance

[LeeE]

Auntie Emily's assistant sent me these two letters from Councilwoman Naeole regarding this issue. It was requested that they be posted here as she wants community involvement.

"The Honorable Linda Lingle
Governor, State of Hawai`i
Executive Chambers
State Capitol
Honolulu, Hawai`i 96813


Aloha Governor Lingle,

Fannie Mae declared in, June of 2009, that it would no longer purchase or securitizes mortgage loans in Big Island Lava 1 & 2 zones. “Properties in lava zone 1 & 2”, according to Fannie Mae, “are not eligible due to the increased risk of property destruction from lava flows within these areas.”

Fannie Mae’s new policy for homeowners and future homeowners in my beloved district of Puna will decrease investment in the community and make it virtually impossible for people to finance or refinance their homes or sell their home. My response to this catastrophic event is that it is more damaging then the threat and risk of lava is the idea that Fannie Mae has changed the rules of the game and not to the benefit of my district.
In saying that, here are some of my thoughts. The LAVA FLOW HAZARD ZONE map of the Big Island was used to make this insurance determination and yet this map was not originally created for risk assessment it was for historical purposes.
Are the people who live at the base of St. Helens redlined, at well? How about the people who live on the San Andres fault? Does Fanny Mae have objections insuring these folks? Does Fanny Mae treat them differently?
This significant policy change will greatly impact the real estate market which is already heading toward a real low. Lava 1 & 2 zones are not just in my district it also includes most of Ka‘u and South Kona too. This decision is going to increase cost of affording housing. How is it that a company can come into our state and dictate who will be covered and who will be left out? If this is true perhaps they should be prohibited to write in the whole state? Insurance is a gamble and it is part of the landscape. Bowing out suddenly and with the flimsiest of excuses is not pono. I am looking to you for answers.

There has to be something we can do to get them to change there decision.
I am looking forward to your response.

Lau Lima,


Emily I. Naeole
Council Member 5th District
County Council Vice-Chair"

"December 10, 2009


The Honorable Jeffrey P. Schmidt
Insurance Commissioner
Insurance Division
P.O. Box 3614
Honolulu, Hawaii


Aloha Commissioner Schmidt,

I have become very concerned about the declining real estate market in my District. It has caused severe economic ramifications and has adversely impacted the availability of low cost housing in the Hilo area.

One of the primary causes for the above conditions is the cost of fire insurance in Lava Zones 1 and 2. Please be aware that over 50% of my district is in Lava Zones 1 and 2 with, 46% of all dwelling in Zones 1 and 2 (4479 units).

I must assume that you are aware; Hawaii Property Insurance Association (HPIA) holds the vast majority of all fire insurance policies in the Lava Zone 1 and 2 areas. With their recent 65% premium increase it has caused a severe economic impact and many times, depletes a family’s disposable income. It has also severely impacted the sales of single family dwellings in the lower Puna District. Because of the high cost of insurance, many people can not qualify for loans with the increased monthly obligation. Also I have determined that it takes 88% longer to sell a house in Zone 1 and 35% longer to sell in Zone 2 then it does to sell in Zone 3. Much of this is due to the excessively high fire insurance costs by having to use HPIA.

As a result of the above, I wish to know why HPIA rates are excessively high. As much as 3 times higher in Zones1 and 2 compared to Zone 3. As an example, for a $250,000 standard policy, the HPIA policy cost is around $2100 while in Zone 3 you can obtain a policy for around $710.

In a recent communication with one of my constituents, Terry Chambers, you mentioned that the HPIA’s rate increase filing is available for public review and that appeals can be made but that a complex actuarial study would be advisable.

I respectfully request that you send me the last 3 years of HPIA filings along with the actuarial studies that I assume you made to justify the increased premiums. If by chance you did not make an actuarial study, I would appreciate that one be made and sent to me or at least send me all the necessary data so we can have the study made for us.



Thank you for your attention to this matter and hopefully we can expect a timely response.

Lau Lima,


Emily I. Naeole-Beason
County Council vice chair.

CC: Gov. Linda Lingle
State Attorney General Mark J. Bennett
Mayor Billy Kenoi"

[Wao nahele kane]

I wonder what it would take to set up a lava zone 1&2 community based and funded insurance policy? I wonder if community created insurance rates could be lower than conventional home insurance rates, if the middle men and profit margins where cut out... ?
When you think about it... lava zone 1 and 2 people are sort of on their own to begin with... why not just cut out the capitalism aspect? Co-op insurance.


E ho'a'o no i pau kuhihewa.

[Bob Orts]

Kane, there is a lot of legal and regulatory things you will need to do, but if you look at various state insurance dept's list of insurance companies you'll see lots of little "co-op" style companies. So although it’s not a walk in the park, it’s doable.

The big hurdle is the capital requirement. Lets say it’s a simple 1 to 1 requirement. For each dollar of insurance you are providing, you need a dollar of capital funds available to pay out. There’s a bunch of rules governing capital and there are reserve requirements, but you will need that money available to pay any claim.

So, you insurance a house for $100,000 you will need $100,000 somewhere to pay out. You insure 100 homes at $100,000 you need ten million dollars in capital.

Its never been the "insurance company" that was the hurdle to overcome, its always been the capital part that prevents this from being so widespread.

[james weatherford]

I hope it works.

My family owns property in Zone 2 and in Zone 3, and we are painfully aware of the very high insurance premiums in Zone 2.

We all know the expression, "I'll believe it when I see it."

James Weatherford, Ph.D.
15-1888 Hialoa
Hawaiian Paradise Park

[ric]

Insurance companies DO NOT keep capital reserves to match the cumulative amounts of their underlying policies. One of the fundamental business models of the insurance companies is that the vast majority of policyholders do not make claims, so that they can handle the payouts on those that do. The insurance companies DO purchase re-insurance to cover any large payouts that could not normally be handled with their own capital.

For zones 1 & 2 to have something community based is not practical at all, because if there were ever a situation where someone would make a claim, there would likely be a large percentage of participants claiming at the same time. So there would be few to fall back on for recovering your loss. Furthermore, the idea that cutting out the middleman is a cost saver only works if there is efficient and experienced management, counsel, etc. available locally. The concept is not at all practical.

[John S. Rabi]

ric, you are absolutely right, very few people know about the re-insurance companies.

Aloha,
John S. Rabi, GM,PB,ABR,CRB,CM,FHS
808.327.3185
johnrabi@johnrabi.com
http://www.JohnRabi.com
Typically Tropical Properties
"The Next Level of Service!"

[Greg]

Living on the rift doesn't have to be a "risk all" scenario. Insurance Companies are unflexible in dealing with lava and related fire.

In Kalapana, for instance, the homes that were saved from the lava were the ones that were uninsured. These homes were moved; and moved at a fraction of the cost of replacement. The insurance companies provided no other option than total loss payouts of hundreds of thousands of dollars per home.

Perhaps a community based insurance scenario could be based on moving homes rather than replacing them. (New builders; Build post and pier, rather than on a slab)

Stoneface

[Wao nahele kane]

As per the re-insurer argument, there is a viable option custom tailored to co-op insurance systems.
The ICMIF may be a direction that can be taken. An international Co-op insurer.
http://www.icmif.org/

Also... I rather doubt co-op insurances would be subject to the exact same state and or federal guidelines as the corporate profit based insurance companies (Underwriters).

If such a grassroots co-op insurance were established through Lava Zones 1&2 potentially expanding into other lava zones, there could be a potential for pushing the common underwriters out of the State by virtue of client losses.

The threat alone of a LZ 1,2 co-op could cause the common underwriters to re-think their position.

E ho'a'o no i pau kuhihewa.

[ric]

quote:

---

Originally posted by Wao nahele kane

Also... I rather doubt co-op insurances would be subject to the exact same state and or federal guidelines as the corporate profit based insurance companies (Underwriters).

---

Yes, because the profit based insurance companies actually can pay out when there is a claim. I guess I'd call that the "ability to pay out guideline", which surely a local insurance co-op would not have in case of a large lava event.

There is far more corruption, inefficiency, and bad service in so-called non-profits than in for-profit businesses. Pursuing local co-op insurance would be like jumping from the frying pan into the fire.

[Wao nahele kane]

Excuse me a moment Ric.... Evidently theres a need to slip into my Hip Waders on this one.
Funny how you immediately assume a payout is only based on a lava event (assuming another happens in the next 90 years) and not a simple fire or blown off comp from a windstorm. Some limits on your comprehension over there?
Ok; continue, I'm good for at least 3 feet of it now...


BTW... can you identify the safest state in the United States with regard to natural disaster events? The theme from Jeopardy just cued in here.
E ho'a'o no i pau kuhihewa.