It’s been a rough year for Hawaii’s Condominium Associations, with many seeing their master insurance policy costs soar by 300% or more in just one year. Some buildings even faced increases of 900% to 1,300%.
Unfortunately, this situation isn’t likely to improve soon. More condos are now carrying master insurance policies that don’t cover the full replacement cost, which could be a problem if a disaster like a hurricane hits. This has forced some buildings to seek expensive insurance on the secondary market.
Sue Savio, president of Insurance Associates in Honolulu, points out that this is creating a ripple effect in the condo community, affecting owners, buyers, sellers, and lenders. “It’s a serious financial issue,” she says, estimating that about 400 buildings have less than full coverage. “It’s probably worse than ever.”
Insurance rates in Hawaii were already on the rise due to disasters across the U.S. and around the world. The devastating wildfires on Maui last summer further highlighted Hawaii as a wildfire-prone state, adding pressure to local insurance markets. Hawaii’s property and casualty insurance companies share their risk with global reinsurers, a system already strained by global catastrophes.

State Legislature Didn’t Act

Hawaii isn’t alone in facing these insurance challenges. In California, Travelers Insurance recently announced an average rate increase of 15.3% for over 300,000 homeowners, while some customers deemed at high wildfire risk lost coverage altogether. State Farm has already stopped renewing policies for 30,000 Californians. In Florida, high insurance rates and rising homeowner association fees are affecting condo sales and prices.
Hawaii’s Legislature attempted to address the condo insurance issue this year with a bill to revive the Hawaii Hurricane Relief Fund, allowing condos to access coverage. However, House Bill 2686 didn’t make it out of the conference committee before the session ended.
Condo buildings typically have master hurricane policies that cover replacement costs, which can amount to tens of millions of dollars. However, many Hawaii condo associations have seen their premiums jump by 300% to 600% in the past year, meaning costs have increased four to seven times. Some buildings are facing increases of 10 to 14 times last year’s costs.

Limited Standard Insurance Options

There are only four major insurance companies that offer property and hurricane policies for Hawaii condos. Of these, State Farm is only renewing existing policies and hasn’t issued new ones since Hurricane Iniki in 1992. First Insurance Co. of Hawaii and Dongbu Insurance continue to write policies, but earlier this year, Allianz reduced its hurricane coverage limit to $10 million per customer.
Elaine Panlilio, AOAO Group Unit manager at Atlas Insurance Agency, points out that for some newer condos in Kaka‘ako, the replacement cost can be as high as $300 million. Without additional coverage layers, they’re only protected by that $10 million limit.
If a condo building doesn’t have full coverage, it could be blacklisted by lenders, making it difficult or impossible for buyers to get mortgages. Both Fannie Mae and Freddie Mac, which purchase mortgages from banks, require 100% coverage of a building’s insurable value. This is why many banks won’t lend on units in buildings with less than full coverage.
Condos can buy additional policies to make up the difference, but it’s expensive. For instance, a $300 million building with only $10 million in coverage would need to purchase an extra $290 million in hurricane coverage, which could cost between $800,000 and $1 million per year.

Deferred Maintenance Complicates Matters

The sharp rise in insurance rates isn’t just due to global disasters; the condition of individual buildings also plays a role. Buildings with many claims or outdated infrastructure can expect even steeper premium hikes.
Alex McLaury, an agent with ACW Group in Honolulu, describes a 10-story condo that had so many water damage claims that its insurance carrier refused to renew its policy. As a result, the condo’s premiums skyrocketed from $30,000 to $35,000 under the original insurer to $200,000 on the secondary market, and eventually to $375,000. Secondary market insurers aren’t bound by state rules or rates, so they can charge much higher premiums than standard carriers.
McLaury assures that any building currently underinsured can still get insurance, though it will be much more expensive. The excess hurricane insurance is available, but it comes with a hefty price tag.
To cover these rising insurance costs, condo associations might have to increase maintenance fees, charge special assessments, or borrow money. “They don’t have that extra $200,000 to $300,000 for insurance premiums. They didn’t budget for it,” says Savio. Some associations consider using reserve funds to pay for insurance, but Savio reminds them that they’ll need to replenish those funds eventually. Others decide to forgo full coverage because they simply can’t afford it, especially in concrete buildings that are more likely to withstand hurricane winds.
“I understand their reasoning,” Savio says, adding that many are hoping the Legislature will take action. However, House Bill 2686, which could have provided some relief, failed to pass before the session ended on May 3. It would have revived the Hawaii Hurricane Relief Fund, currently holding $160 million, and allowed condos to access these funds.
McLaury notes that Hawaii’s property insurance rates have been “artificially low” for a long time. Unlike Florida, which faces hurricanes nearly every year, or California with its frequent wildfires, Hawaii had been relatively free of major disasters until the wildfires in Lahaina and Kula last August.
Hawaii tends to follow mainland trends with a delay of a year or two. McLaury recently heard a mainland broker say that last year was the worst in 45 years for the insurance industry. “I think we’re now entering what could be our worst year,” he says. While rates on the mainland have begun to stabilize this year, Hawaii might not see similar stabilization for another two years.
Reinsurance companies now have deductibles for insurance carriers that are two to three times higher than before. Since insurance carriers are exposed to greater risk, they have to charge more to offset that risk. McLaury doesn’t expect rates to drop anytime soon. “I don’t think we’ll ever get back to where we were in 2018,” he adds.

Shrinking the Pool of Potential Buyers

Home sales are also being impacted in those 400 or so buildings that no longer carry 100% replacement coverage. Most banks won’t provide mortgages for units in these buildings.
“Sellers may struggle,” says Victor Brock, legislative chair at the Hawaii Mortgage Bankers Association. “The pool of potential buyers shrinks because it’s limited to cash buyers or those with larger down payments, rather than the wider pool of buyers. And refinancing might be nearly impossible.”
House Speaker Scott Saiki has stated that while there are no immediate plans to call a special session to address the insurance issue, it’s not off the table. He mentioned that he and Insurance Commissioner Gordon Ito would monitor the situation over the summer. “If we begin to see major impacts on transactions and borrowing, we may have to consider it,” Saiki says. “This issue affects not just the availability and cost of property insurance but also has broader implications for buyers, sellers, and homeowners who need to insure their properties.”