In one of the first actions of the new year, Hawaiian lawmakers have proposed creating a parametric risk transfer facility that would move the state’s residual hurricane risk into the private market with insurance and reinsurance carriers.
The bill, introduced last week by Senators Mike Gabbard and Russell E. Ruderman, would create a “Parametric disaster insurance pilot program” that would operate out the risk management office of the state’s Department of Accounting and General Services. The legislation describes a pilot program that would last three years and allow the Aloha State to “[explore parametric disaster insurance policies for the State” and purchase parametric disaster insurance.
Wording in the proposal includes a possible trigger for the facility, describing any hurricane that “passes through a specific covered area such as the Ala Wai watershed” with one-minute maximum winds of ninety-six miles per hour or higher.
“I introduced SB 799 in collaboration with Hawai`i Green Growth and the University of Hawaii,” said Sen. Gabbard .”The idea behind the bill is to improve our state’s resiliency as it relates to possible catastrophic hurricanes that could greatly damage economic centers here, such as Waikiki.”
“The legislature finds that the establishment of a parametric disaster insurance pilot program could reduce Hawaii’s financial exposure and compensate the State based on the physical characteristics of a catastrophic natural disaster,” the bill states. “The payment would not be subject to the limitations faced by federal disaster relief and can be used for any purpose, such as emergency response costs, replacing lost tax revenue, and funding of increased insurance costs.”
The state has attempted a residual risk market in the past, creating the Hawaii Hurricane Relief Fund in 1993 after Hurricane Iniki caused about $1.6 billion in insured losses. The fund was shut down and stopped writing coverage at the end of 2000 and but could begin writing coverage if its board private insurance market is not making property insurance “reasonably available.”
Legislation creating the parametric facility cited research that said a storm similar to Hurricane Iniki and making landfall near Waikiki would create $20 billion to $40 billion in economic damage that “represents almost fifty per cent of the state gross domestic product and over three years of total government spending.”
Recent research also suggests that the island may see more frequent destrcutive hurricanes.