State Farm ending hurricane coverage for single-wall rental homes

HONOLULU (HawaiiNewsNow) – State Farm has stopped renewing hurricane policies on single-wall, wooden houses that are rented in Hawaii, a move the company said is aimed at reducing its risk in a disaster.

The decision affects thousands of rental homes because State Farm is the dominant insurer in Hawaii’s market.

State Rep. Scot Matayoshi, chair of the House Consumer Protection Committee, said the change is concerning because it will make the rental market even more unaffordable.

“When insurance rates rise for rental units, that is especially concerning because those rental owners are going to pass that cost down to the renters,” Matayoshi said. “And renters are already under such strain.”

The grooved redwood slats were cheaper to ship and temperature control and insulation, installed between outside and inside walls in wood-frame houses, was not necessary, so tens of thousands of homes were built that way until about the 1980s. The homes are more vulnerable to fire and wind and now cost more to insure.

“So when insurance for rental units goes up, our entire economy is going to feel it,” Matayoshi said.

One landlord showed Hawaii News Now their old State Farm premium of just above $1,700 for both property and hurricane coverage. The new quote from a company called Centauri Specialty Insurance was over $2,300 just for hurricane coverage. The cost to insure the rental home went up more than $100 per month.

State Insurance Commissioner Scott Saiki said State Farms move was predictable.

“Those kinds of homes are at higher risk of sustaining damage,” Saiki said. “And that’s a concern also for insurance companies.”

State Farm was over-exposed to that risk. It insured most of the homes that burned in Lahaina and a majority of the market statewide. By withdrawing hurricane insurance from the limited pool of single-wall rental homes, the company said the decision “helps State Farm manage the risks associated with this type of construction, which is more susceptible to damage from multiple perils including hurricanes.

“State Farm must manage risk responsibly so we can remain financially strong and continue serving customers over the long term,” the company said.

Saiki said regulators cannot control whether or not companies cancel or renew policies.

He said other locally licensed companies have stepped up to provide coverage, almost always at a higher price than State Farm.

“Those rates are naturally going to be higher than State Farm just because they tend to be smaller companies that have to be able to charge more to make ends meet,” Matayoshi said.

Despite the pain for owners and renters, Saiki said the change is healthier for the insurance market overall with more companies spreading the risk and competing for customers.

“That will ultimately help bring down the cost for everyone,” Saiki said.

Regulators are watching how easily State Farm hurricane insurance customers can find coverage. If it gets too hard to find or expensive, the state’s hurricane relief fund can be activated for the single-wall rental market.