Hawaii Property Insurance Market Faces Climate-Driven Instability and Rising Costs

Hawaii's property insurance market is facing increasing instability, particularly for condominiums, due to climate change-related disasters, aging housing stock, and the withdrawal of private insurers. Nonrenewals in the state have surged by 216% between 2018 and 2023, with homeowner premiums rising by 12% and condominium fees increasing by 16% on average. The state's housing challenges include a majority of properties built before 1990 requiring costly upgrades and a significant portion of multifamily homes where insurance is critical for sales and mortgages. Private insurers notably retreated after the 2023 Lahaina wildfires, prompting expanded roles for state-backed entities such as the Hawaii Hurricane Relief Fund and Hawaii Property Insurance Association to provide coverage for condominiums. The report warns that public insurance backstops could be overwhelmed in the event of a major disaster comparable to Hurricane Iniki in 1992, which resulted in $3.6 billion in today's dollars of insured losses. Instability in insurance threatens to freeze transactions in parts of Hawaii's housing market due to mortgage requirements for adequate insurance. Rising premiums and reserve contributions have sharply increased homeowners association fees, imposing financial strain on fixed-income residents and potentially increasing rents for tenants. The situation may contribute to parts of the state becoming inaccessible to buyers who rely on financing. A significant focus of the analysis is on financial responsibility for climate disaster costs, emphasizing that homeowners and taxpayers should not bear these burdens alone. The report advocates for empowering Hawaii to pursue subrogation claims against fossil fuel companies to recover disaster-related costs, following precedents set by several states with "Climate Superfund" laws. Hawaii has previously authorized legal actions against major fossil fuel companies to fund climate adaptation and disaster recovery. The report outlines a multi-faceted approach to stabilize the insurance market, including holding polluters financially accountable, strengthening land-use policies by restricting development in high-risk areas, enhancing building safety codes, and accelerating retrofitting of aging homes with hazard-resistant features. It also highlights past state programs that successfully incentivized risk reduction, cautioning that current climate realities require faster systemic adaptation. Failure to act could result in widespread property insurance unavailability, reduced market liquidity, and exacerbated housing affordability challenges in a state already facing high costs. The intersection of insurance market instability and housing access underscores the importance of integrated policy solutions addressing climate, insurance regulation, housing stock resilience, and disaster finance in Hawaii.