Although weakening and losing its ability to deliver a dramatic punch, Tropical Storm Flossie may serve as a catalyst for Hawaii’s local government to find a replacement to its once large hurricane fund that was drained of assets in 2011.
Legislators raided the state’s windstorm fund two years ago, leaving it exposed to a possible $5 billion loss in a worst-case scenario, according to the government’s own estimates.
With no money to repay the IOU, Hawaii is now scrambling for a “private market” insurance solution to fill the gap.
According to the latest forecasts, Tropical Storm Flossie is expected strike Hawaii Monday with 50 mile-per-hour maximum sustained winds and significant rains that could cause destructive landslides and flooding. Both the state’s “Big Island” and Maui are expected to bear the brunt of the storm.
While the storm is not expected to reach hurricane strength, it is Hawaii’s first “direct hit” from a tropical storm in more than two decades. The 20 year gap between major storms is part of the reason that state leaders tapped the Hawaii Hurricane Relief Fund in 2011.
According published reports, lawmakers used the funds to balance the state’s budget following the 2008 financial crisis citing the lack of storm-related losses, greater insurance choices and studies that argued the region should expect a “below average” number of hurricanes because of “cooler ocean waters.”
The hurricane fund — which at one time had over $220 million in assets — now has a balance of approximately $20 million, according to state estimates.
A bill introduced last year proposes to change the hurricane relief fund from a public to a “private entity” that would be able to purchase insurance and reinsurance. The bill remains in legislative committees while lawmakers debate funding plans, which includes everything from revenue bonds and mortgage fees.
While the legislation admits that more insurance carriers have entered the market over the years, policies have not kept up with the overall exposure due to the state’s rapid development along the coast. Creating the fund would make up that difference, the legislation argues.
The bill cites the last major windstorm to strike the Aloha State was 1992’s Hurricane Iniki which caused $1.6 billion in damage.
“It has been observed that if a hurricane of the size and strength were to hit the highly urbanized south shore of Oahu, including downtown Honolulu and Waikiki, the estimated amount of damage would range from $3 billion to $5 billion.”
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