By Deborah Adamson
Advertiser Staff Writer

Q: Why are hurricane insurance rates going up? My premiums went up from $416 to $967.

— Eileen Anderson, Kahalu'u

A: One explanation is that your house is a single-wall construction. Last November, Zephyr Insurance Co. raised its rates by an average of 31 percent after getting state approval.

But for customers with single-wall constructed homes, the base rates doubled, according to the Hawai'i Insurance Division.

"Single-wall homes don't hold up nearly as well as double-wall constructed homes," Zephyr, one of the largest hurricane insurers in Hawai'i with 65,000 policies, said in a statement.

Other factors that contributed to the increase include current hurricane risk modeling data, the cost of doing business and reinsurance rates, Zephyr said.

Computer modeling of catastrophic risk has recently increased in sophistication, which affects rates, said state Insurance Commissioner J.P. Schmidt.

Risk models

In 2002 and 2003, the state approved the use of two hurricane risk models from AIR Worldwide Corp. and Risk Management Solutions, respectively.

While insurers were not required to use these models, many eventually chose to because these were tailored to Hawai'i, Schmidt said. The models would run different scenarios on the extent of hurricane damage in parts of the state.

Armed with better data from sophisticated computer models, among other factors, State Farm Insurance adjusted its hurricane insurance rates to make sure they would be "adequate" when a catastrophe strikes, said spokeswoman Carolyn Fujioka.

In 2003, State Farm raised its hurricane insurance rates by an average of 40 percent to be implemented over two years. State Farm is the largest writer of hurricane insurance in the state, Fujioka said. Most of its 80,000 homeowners policies also carry hurricane coverage.

Cost of reinsurance

Another factor that affected hurricane insurance rates for homeowners is the rising cost of reinsurance. That's one reason why First Insurance raised rates by an average of 15 percent last year, said Steve Tabussi, vice president of customer solutions. First Insurance has 35,000 homeowners policies, of which most also have hurricane insurance.

Insurance companies may take out insurance from other insurers — they're called reinsurers — if they wish to transfer part or all of the risk in a certain area. Catastrophic reinsurance rates, which include hurricane, are affected by disasters around the globe. As such, a hurricane doesn't have to occur in Hawai'i for your hurricane rates to go up.

Reinsurance rates have been rising, said Ernest Fukeda Jr., president of Hawaiian Insurance Guaranty whose 17,000 homeowners policies also carry hurricane insurance.

But Fukeda's company has not raised hurricane rates since 2000 — even after the approval of the hurricane risk models and in spite of higher reinsurance costs. He said it's because of the way Hawaiian Insurance is managed.

"We have a comfortable profit margin," he said, adding that his company wants to be sensitive to customers' wallets.

Got a consumer or personal finance question? Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.