HOUSE OF REPRESENTATIVES

H.B. NO.

1443

TWENTY-SEVENTH LEGISLATURE, 2013

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

relating to the hawaii hurricane relief fund.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


     SECTION 1.  Hurricane Iniki struck Hawaii on September 11, 1992, devastating the island of Kauai and the leeward coast of Oahu.  Hurricane Iniki was the costliest hurricane in the history of Hawaii, causing approximately $1,600,000,000 in damage.  On Kauai, the storm destroyed thousands of homes and left a large portion of the island without electricity.  Iniki also caused six deaths--four on Kauai and two on Oahu.  It has been observed that if a hurricane of the size and strength of Iniki were to hit the highly urbanized south shore of Oahu, including downtown Honolulu and Waikiki, the estimated amount of damage would range from $3,000,000,000 to $5,000,000,000.

     Although it has been over twenty years since Hawaii was last struck by a hurricane, the state has experienced many close brushes with major hurricanes with potentially devastating effects during the intervening period.  Growing scientific evidence exists that the earth is warming.  Among the numerous effects predicted as a result of such climate change is an increase in the severity of hurricanes.

     As a geographically isolated archipelago at the center of the Pacific Ocean, Hawaii must be prepared for more powerful hurricanes.  Prior to Hurricane Iniki, homeowner's insurance covered losses from fire, windstorms, hurricanes, and other causes.

     Soon after Iniki, homeowner's insurance, which continued to include hurricane coverage, became difficult to obtain.  Eventually, insurance companies, reeling from the estimated $1,600,000,000 in damage wrought by Hurricane Iniki, stopped writing and renewing hurricane insurance policies in Hawaii.  Many private insurers exited the Hawaii market, noting the high risk and the lack of reinsurance coverage as the principal reasons for their departure.  To protect property owners and keep real-estate transactions from grinding to a halt, the State created the Hawaii hurricane relief fund to provide government-run hurricane insurance through Act 339, Session Laws of Hawaii 1993 (Act 339).

     As a result of that law, insurance companies issued homeowner's insurance policies that did not contain coverage for hurricane risk.  The Hawaii hurricane relief fund issued policies covering the hurricane risk.  Act 339 made private insurers liable for no more than the first $500,000,000 in losses in the event of another hurricane.  Losses in excess of that amount were borne by the Hawaii hurricane relief fund.  The fund was financed by special fees on mortgages recorded in the state, premiums from insurance policies issued by the fund, and an annual assessment on private insurance companies.  At its height, the Hawaii hurricane relief fund insured approximately two-thirds of the residential-housing market in the State.

     However, when many years passed without another hurricane striking Hawaii, private insurance companies began issuing their own coverage once again.  As of July 1, 2001, the State stopped collecting the special mortgage recording fee, and the Hawaii hurricane relief fund has been dormant since the end of 2002.  Nevertheless, authorization for the Hawaii hurricane relief fund remains operative in the law so that in the event of a hurricane or other catastrophic event that affects the reinsurance market, the fund could be restarted and could begin writing policies again, if necessary.  Over the years, however, the Hawaii hurricane relief fund has incrementally been depleted.  Since 2002, both the legislature and executive branch have sought to use the moneys in the fund to help meet the State's budgetary requirements.  At its peak, the fund held $222,000,000.  Its current balance, however, is estimated at only $20,000,000, which is woefully inadequate in case another hurricane occurs.

     The purpose of this Act is to rebuild the reserves of the Hawaii hurricane relief fund to realistic levels so that if needed, the State can protect homeowners by once again issuing insurance policies to cover hurricane risk.

     SECTION 2.  Section 431P-2, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§431P-2[]]  Establishment of Hawaii hurricane relief fund.  There shall be a Hawaii hurricane relief fund to be placed within the department of commerce and consumer affairs for administrative purposes.  The fund shall be a public body and a body corporate and politic.  For purposes of participating in the insurance market, the fund shall be authorized to conduct itself as a private entity."

     SECTION 3.  Section 431P-5.5, Hawaii Revised Statutes, is amended to read as follows:

     "§431P-5.5  Accumulation of [$500,000,000] $         in funds and commitments.  (a)  Upon written confirmation from the insurance commissioner that the director of finance has secured [$500,000,000,] $        , in the aggregate, in the form of:

     (1)  Commitments from either the federal government or an agency of the federal government or a financial institution;

     (2)  Revenue bonds other than those issued or to be issued in response to the occurrence of a covered event; or

     (3)  A combination of the commitments or bonds;

the Hawaii hurricane relief fund shall:

     (1)  Control or freeze rates; and

     (2)  Continue accumulating premiums from policies of hurricane property insurance and the special mortgage recording fee, net of any reinsurance payments, operating expenses and funds necessary for the development of a comprehensive loss reduction plan.

     (b)  When the balance of the net moneys accumulated totals [$500,000,000,] $        , the Hawaii hurricane relief fund may notify the insurance commissioner of that fact.  The insurance commissioner, in turn, may order, following the receipt of the notice, a reduction in the rates for policies of hurricane property insurance.

     (c)  In the event of a loss from a covered event, the net moneys accumulated shall be used to settle claims and pay current and ongoing expenses of the Hawaii hurricane relief fund.  The net accumulated moneys, commitments, and bonds described in subsection (a)(2) shall be used only in the event losses from a covered event exceed the assessment pursuant to section 431P-5(b)(8)(B).

     (d)  In the event the balance of the net accumulated moneys falls below [$400,000,000,] $        , the Hawaii hurricane relief fund shall establish rates, subject to the approval of the insurance commissioner, necessary to replenish the account balance to [$500,000,000] $         as promptly as reasonably practicable.  The director of finance shall seek to arrange additional commitments whenever the account balance falls below [$400,000,000.] $        .

     (e)  The Hawaii hurricane relief fund shall be exempt from paying all taxes and fees levied by the State on other insurers."

     SECTION 4.  Section 431P-10, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

     "(a)  Policies issued by the fund shall provide a maximum aggregate coverage of up to [$750,000] $         per risk on real property of one to four units used for residential purposes and [$500,000] $         per risk for real property used for business, commercial, or industrial purposes and shall provide for a mandatory deductible.  The deductible amount for residential property policies shall be the greater of [$1,000] $         or one per cent of the insured value or the greater of [$2,000] $         or two per cent of the insured value; provided that the board may establish higher deductible limits.  The deductible amount for commercial property policies shall be the greater of [$5,000] $         or five per cent of the insured value or an amount equivalent to all the other perils deductible of the companion policy; provided that the board may establish higher deductible limits."

     SECTION 5.  In accordance with section 431P-5(b)(15), Hawaii Revised Statutes, the board of directors of the Hawaii hurricane relief fund shall reactivate the special mortgage recording fee established under chapter 431P, Hawaii Revised Statutes, pursuant to resolution of the board.

     SECTION 6.  There is appropriated out of the general revenues of the State of Hawaii the sum of $113,250,000 for fiscal year 2013-2014 to be deposited into the Hawaii hurricane relief fund.

     The sum appropriated shall be expended by the department of budget and finance for the purposes of this Act.

     SECTION 7.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 8.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 9.  This Act shall take effect on July 1, 2013.

 

INTRODUCED BY:

_____________________________

 

 


 


 

Report Title:

Hawaii Hurricane Relief Fund

 

Description:

Authorizes the Hawaii Hurricane Relief Fund to conduct itself as a private entity to participate in the insurance market.  Reactivates the special mortgage recording fee.  Replenishes the Hawaii Hurricane Relief Fund.  Effective July 1, 2013.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.