MAILE RESPONDS: WILL HI RESIDENTS BE LEFT WITHOUT HURRICAN INSURANCE IF ANOTHER DISASTER STRIKES?

Dear Ms. H.:

After careful research on your question it would be extremely difficult to determine if insurance companies will leave Hawaii if the hurricane relief funds are taken to balance the budget. After Hurricane Iniki in 1992 the insurance industry suffered huge losses on Kauai. This is the reason why the companies stopped offering hurricane insurance in Hawaii.

The HI Hurricane Relief Fund was set up in 1992 in response to the insurance companies’ pull out. This fund was set up to offer insurance to homeowners with mortgages contingent on hurricane insurance policies, but was abolished in 2001 (see more information below).

The insurance companies that offer hurricane riders are in the insurance business of making money, but in the event there is a loss the policy holder is covered. What would cause insurance companies to pull out of Hawaii is probably another catastrophic Hurricane.
Another concern I often hear is whether HI residents would be left without hurricane insurance if the relief fund is used to help balance the budget. As history, last year the legislature passed SB2124 authorizing $67 million from the Hawaii Hurricane Relief Fund to end the public school Furlough Fridays for fiscal year beginning July 1, 2010.

Now during the 2011 session, some advocates argue that using the Hurricane Relief Fund, which currently has a balance of about $110 million, to help address the over $1.3 billion dollar shortfall, is appropriate. Here’s why:
1) The Hurricane Relief Fund, which was attached to the Department of Commerce and Consumer Affairs, is no longer an active program. The mandatory annual contribution by property owners into the fund was abolished in 2001.
2) Concern: People frequently ask, “What happens when we are hit by another hurricane? We need the money from the Hurricane Relief Fund to help with disaster relief.”
Response: The Hurricane Relief Fund was originally created after Hurricane Iniki, when private sector insurance companies ceased offering hurricane insurance. While the fund once served to provide hurricane insurance to Hawaii’s mortgage holders, the re-entry of private sector insurance firms into the hurricane coverage market has negated this need. The fund no longer provides insurance policies, and moneys currently left are no longer needed to provide this service. While some may believe the fund is supposed to be used for reconstruction in the wake of a future hurricane, this is not the case.
3) Concern: What about people who paid into the fund in past years? Shouldn’t they get their money back?

Response: No. Like any other insurance policy, once the policy ends, the insured does not receive back the amount of the premium.
4) Concern: The current insurance commissioner has testified that the funds should remain in place in case the program needs to be reactivated in the future.
Response: The fund balance, according to statute, should be transferred to the general fund.

5) Concern: The balance is considered one of the state’s reserves, and plays an important role in qualifying Hawaii for a strong bond rating.
Response: While no one wants to tap into the fund if possible, most agree that the potential loss of critical services due to our fiscal crisis is serious enough to warrant setting money aside from the Hurricane Relief Fund.
People also ask about the Rainy Day Fund, which may be used to balance the budget. The Rainy Day Fund receives money on an annual basis from the tobacco settlement agreement. It’s not related to the Hurricane Relief Fund. The Rainy Day Fund is officially called the Emergency and Budget Reserve Fund. The purpose of the Rainy Day fund is to help programs in education, health and human services. Thus, the use of the Rainy Day Fund for social services, homeless services, housing, healthcare, education, etc. is appropriate.

I hope I have helped to address your concerns. If you’d like to be added to my email newsletter, send an email to: waianaecoast-subscribe@yahoogroups.com

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