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Hawaii Businesses Face Heightened Risk from Insurer Withdrawals

·5 min read·👀 Watch

Executive Summary

A growing number of insurance companies are reconsidering their presence in Hawaii, increasing the risk of underinsurance for property and business owners. Owners must proactively assess their coverage and explore alternative options within the next 90 days. Real estate owners face increased due diligence needs, small business operators may see rising operational costs due to insurance gaps, and tourism operators need to ensure business interruption coverage. Investors should monitor this trend for potential impacts on asset valuations and market stability.

Watch & Prepare

High PriorityNext 90 days

Failure to assess current insurance adequacy and explore alternatives could leave businesses uninsured or underinsured in the event of a covered disaster, potentially leading to significant financial loss.

Review all insurance policies for disaster coverage adequacy (hurricane, flood, earthquake) and business interruption coverage. Consult Hawaii-specialist insurance brokers to explore all available market and surplus lines options.

Who's Affected
Real Estate OwnersSmall Business OperatorsTourism OperatorsInvestors
Ripple Effects
  • →Increased insurance costs → higher rental rates for commercial and residential properties
  • →Insurer withdrawal → reduced market competition → higher premiums & less coverage options
  • →Lack of insurance → slower disaster recovery & potential business closures
  • →Uninsured properties → impact on loan-to-value ratios & real estate financing availability
Close-up image of two people signing an insurance policy document on a wooden desk.
Photo by Mikhail Nilov

Hawaii Businesses Face Heightened Risk from Insurer Withdrawals

A growing trend of insurance companies scaling back or withdrawing entirely from Hawaii's market presents a significant risk to businesses and property owners across the islands. This situation is exacerbated by the state's vulnerability to natural disasters, including hurricanes, floods, and earthquakes. A recent discussion with the Hawaii Insurance Division highlighted critical gaps in understanding and securing adequate coverage, particularly as major insurers become less available or cease offering policies.

The Change

The Hawaii Insurance Division, through its Chief Investigator Sam Thomsen, has issued advisories and public discussions emphasizing a concerning shift: insurers are increasingly declining to renew policies or are exiting the state altogether. This is driven by escalating risks associated with climate change and the potential for catastrophic weather events, coupled with regulatory and market dynamics unique to Hawaii. The implications are profound, leaving businesses and individuals to navigate a shrinking insurance landscape.

Who's Affected?

  • Real Estate Owners (Property Owners, Developers, Landlords, Property Managers): Properties may become uninsurable or premiums may skyrocket, impacting financing, property values, and the ability to secure new development permits. Reinsurance costs for primary insurers are a significant driver, and this cost is passed on. Understanding the fine print on hurricane, flood, and earthquake coverage is paramount. Failure to secure adequate insurance could lead to a direct financial loss in case of disaster, impacting portfolios and development pipelines.
  • Small Business Operators (Restaurants, Retail, Services): Business interruption insurance is critical. If a covered event occurs and insurance is inadequate or non-existent, the business could face closure and significant financial ruin. Higher insurance premiums will also add to already rising operating costs, potentially impacting margins and staffing decisions. The availability and cost of insurance can influence decisions on opening new locations or expanding existing ones.
  • Tourism Operators (Hotels, Tour Companies, Vacation Rentals): These businesses rely heavily on consistent operations. A gap in business interruption insurance or property damage coverage due to an uninsured event could halt operations for extended periods, leading to massive revenue loss and reputational damage. The ability to secure financing for upgrades or expansion also hinges on demonstrable insurance coverage.
  • Investors (VCs, Angel Investors, Portfolio Managers, Real Estate Investors): The withdrawal of insurers could signal a higher risk environment for Hawaii-based assets. This may lead to devaluations of real estate and businesses that are difficult to insure. Investors need to factor insurance availability and cost into their due diligence for any Hawaii-centric investments, understanding that a lack of insurance can be a critical factor in asset viability and market stability.

Second-Order Effects

  • Increased Insurance Costs → Higher Property Taxes & Rents: As insurers face higher payouts and reinsurance costs, premiums rise, forcing property owners to either absorb these costs or pass them on. This can lead to higher rental rates for both residential and commercial properties and potentially increased property tax assessments if market values are perceived to rise uniformly with insurable asset values. This cascades into a higher cost of living and doing business, impacting consumer spending and business margins.
  • Insurer Withdrawal → Reduced Market Competition → Higher Premiums & Less Coverage: As fewer insurers operate in the market, competition diminishes. This empowers remaining insurers to dictate terms and pricing, leading to higher premiums, reduced coverage options, and stricter underwriting standards. Businesses and individuals then face a choice between paying exorbitant rates for limited coverage or operating uninsured, significantly increasing their financial vulnerability.
  • Lack of Insurance → Slower Disaster Recovery & Economic Stagnation: If businesses and individuals lack adequate insurance, disaster recovery becomes a slow, self-funded process. This can lead to prolonged closures, job losses, and a general economic downturn in affected areas, discouraging new investment and further exacerbating the insurance market contraction.

What to Do

Given the current climate and the potential for further insurer market contraction, proactive assessment and action are critical:

  • Real Estate Owners: Immediately review all property insurance policies, paying close attention to coverage limits, deductibles, and exclusions for hurricanes, floods, and earthquakes. Consult with independent insurance brokers specializing in Hawaii risks. Understand the requirements for financing and property sales, as lenders and buyers will require proof of adequate insurance.
  • Small Business Operators: Conduct a thorough review of all business insurance, including general liability, property damage, and most importantly, business interruption insurance. Quantify potential losses if operations were to cease due to a covered event and assess if current coverage would be sufficient for recovery. Explore surplus lines insurance options if standard market coverage is unavailable or unaffordable. Document all operational costs and revenue streams meticulously, as this data is crucial for business interruption claims.
  • Tourism Operators: Verify that business interruption insurance covers events and durations relevant to Hawaii's disaster profile. Ensure your policies are robust enough to cover revenue losses and operational expenses during extended closures. Engage with your insurance provider to understand their risk models and renewal policies, and begin exploring alternative providers or specialized insurance pools if necessary.
  • Investors: Add insurance availability and cost analysis as a standard component of due diligence for all Hawaii real estate and business investments. Monitor reports from the Hawaii Insurance Division and market analyses on insurer solvency and market penetration. Assess the potential impact of uninsured risks on borrower default rates and asset valuations within your portfolio.

Action Recommendation:

For all affected roles, the immediate priority is to perform a comprehensive review of existing insurance policies. Understand your specific disaster risk exposure and assess coverage adequacy for property damage and business interruption. Consult with independent, Hawaii-specialized insurance brokers to explore all available options, including standard market and surplus lines insurers. Document this review process and any policy changes or broker communications. If coverage is found to be insufficient or unavailable, begin researching alternative risk mitigation strategies and contingency funding plans. This review should be completed within the next 90 days to ensure adequate preparation before potential further market shifts.

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