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The Honolulu Advertiser
Posted on: Sunday, July 20, 2003

Hurricane insurers raise rates

By Deborah Adamson
Advertiser Staff Writer

Hurricane insurance rates are rising dramatically in Hawai'i as insurers reassess their risks and struggle with higher costs.

State Farm Insurance, Hawai'i's largest home insurer, raised its hurricane insurance rates for new customers on July 15 by an average of 40 percent. Current policyholders will see an increase starting Sept. 1.

RLI Corp., an insurer covering 14,000 homes, has applied to the state for an increase, which still is under review.

And last year, USAA, First Insurance and Liberty Mutual increased hurricane insurance rates by 50 percent, 39 percent and 20 percent on average, respectively.

The rate increase doesn't mean insurers are expecting a storm. A hurricane hits Hawai'i about once every decade and weather forecasters are predicting 2003 will be a dry, quiet year for hurricanes and tropical storms in the North Pacific.

Some of the nation's largest insurance companies are still dealing with the fallout from claims related to Sept. 11 terrrorism. In addition, the anemic economy has meant insurance companies have suffered major investment losses, draining their reserves.

State Farm and other insurers base their Hawai'i rates, in part, on hurricane risk models approved by the state.

The hurricane risk model doesn't forecast the likelihood of a hurricane but calculates the potential damage that could occur under various scenarios. State regulators and insurance companies review the risk models and, in some cases, insurers adjust their rates to cover what they calculate their exposure to be in the event of storms of various magnitudes.

USAA, Liberty Mutual and First Insurance hiked their rates in response to the state models, said J.P. Schmidt, the state insurance commissioner. Depending on the amount of coverage, homeowners may see premium increases of several hundred dollars a year.

The models provide a realistic assessment of risk for insurers, balancing it with the homeowner's desire for reasonable rates, Schmidt said.

By working closely with insurers, the state regulators are trying to avoid a repeat of what happened after Hurricane Iniki hit in 1992, devastating Kaua'i and causing $1.6 billion in damage. Insurers left Hawai'i after suffering major losses, forcing the state to set up its own insurance fund.

The state will "try to keep rates reasonable so insurance companies won't then later have a large (rate) increase to remain solvent or go insolvent," Schmidt said.

Carolyn Fujioka, State Farm's spokeswoman, said the company is raising hurricane rates for the first time since early 1999.

This year, homeowners won't have to pay for the full increase; their increase can be paid in installments. The cap for 2003 is 25 percent, which the state negotiated. The remaining 15 percent will be added to next year's bill.

Linda Cua, a homeowner in Wai'alae Iki, said she accepts the higher rates.

"If they have to raise it, we cannot do anything. We have to accept it," she said. "It's part of homeownership."

DTRIC Insurance Co. will drop hurricane insurance from its homeowners policy on Sept. 1. Instead, it will offer hurricane coverage provided by Zephyr Insurance Co.

Zephyr, a Hawai'i-based company that sells hurricane insurance through Allstate and other agencies, provides most of the hurricane coverage in Hawai'i..

Schmidt said Zephyr doesn't plan a rate increase.

Jim Gormley, vice president of underwriting at DTRIC, said rising reinsurance costs prompted the company to drop writing hurricane policies. DTRIC serves 2,300 policy-holders statewide and is one of the companies that include hurricane insurance with its homeowners policies. Some other companies sell it separately.

"The reinsurance market has tightened significantly since 9-11," Schmidt said. "By tightening,

I mean they're not offering as much, they are harder to get and they are charging more, too."

Insurers take out insurance from reinsurers to protect themselves. When reinsurers raise prices, there's a lag before higher prices hit because insurers buy contracts lasting a year or more, Schmidt said.

"This is the first time the hurricane insurers felt the tightening of the market since 9-11," he said.

Some insurers will offer discounts on hurricane insurance if homeowners take steps to make their houses more resilient, such as structural reinforcement and tie-downs for the roof, Schmidt said.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8064.

Correction: Zephyr Insurance Co. is a Hawai'i-based company and sells hurricane insurance through Allstate and other agencies. A previous version of this story was incorrect.