Did you catch the news about insurance problems cropping up in the area on the Big Island now threatened by the lava flow?
Last weekend, Big Island Video News reported that the Puna Community Medical Center had been notified that its insurance coverage would not be renewed when its current term expires on November 3.
It’s insurance was provided through Dongbu Insurance, a Korean insurer that has been doing business in Hawaii since 2005.
In a letter dated September 11, Honolulu-based Dongbu Insurance notified PCMC of their intention not to renew two policies, liability and workers’ comp. The company cited Hawaii Revised Statutes 431:10C-111.5 as their legal grounds to do so.
The reason for the liability non-renewal, as stated in the letter, is “due to property located in Lava zone 2?. Dongbu has provided the insurance for PCMC since the medical center’s beginning, nearly six years ago. Big Island Video News obtained a photo of the letter and we have included it below.
“We haven’t just moved to Lava zone 2, we’ve been in Lava zone 2 from the very beginning,” said PCMC’s Clinical Programs Director Dan Domizio in a video interview on Saturday. “Perhaps it just occurred to the Dongbu Insurance people that we were here. I dont really understand, exactly, what they just discovered.”
On Monday, Hawaii News Now reported Dongbu had reversed its decision after intervention by the state insurance commissioner.
The medical center has already overcome one obstacle. The facility’s insurance wasn’t going to be renewed until the state’s insurance commissioner intervened. Non-renewals are legal, but his division has a message for insurers serving the Puna area.
“We urge these companies to be good corporate citizens, and do the right thing for the people in this area and the state,” said Insurance Commissioner Gordon Ito.
And West Hawaii Today then noted that Dongbu is also still considering whether it will target homeowners’ policies for non renewal as well.
A Dongbu Insurance representative said the company changed its decision after realizing how important the medical center is to the community. The state Insurance Commission also spoke with the company’s branch manager Monday morning.
The company offers residential building insurance, in addition to commercial coverage, in the Pahoa area.
Asked if other policies also could be at risk of not being renewed, Jinny Bae, Dongbu underwriting manager, said that issue is under review.
“We have not yet made a decision on that matter,” he said.
It isn’t known whether other insurers are also looking at letting policies lapse at their renewal dates.
When Dongbu first entered the Hawaii market, it had only limited resources in the islands, but was aggressively marketing its hurricane policies and other coverage to condominium associations.
There were concerns that the company would be unable to meet its obligations if a major storm were to hit, prompting at least one complaint to the Insurance Commissioner by a competitor.
I wrote a column about the Dongbu situation, which appeared in Honolulu Weekly (“Big hurricane, big problem, Dongbu’s hurricane insurance might not be enough to save the big buildings“).
From that 2007 column:
But the Korean insurer’s decision to offer hurricane and other coverage to condominium associations as well as individual homeowners has drawn unusually strong criticism from a local insurance executive who says Dongbu has misrepresented the financial strength of its local business and does not appear to have the resources on hand to cover claims for property damage to one or more large buildings from a major storm.
Sue Savio, president of Insurance Associates, said the recent close encounter with Hurricane Flossie underscored the issue. She acknowledged that the complaint about Dongbu was filed by an agent in her firm with the company’s knowledge and support.
‘Our concern is that while the parent company is very financially strong and an ‘A’ rated carrier, the way the Hawai’i’s laws work, only the surplus the company has in Hawai’i is attachable’ if the local business folds, Savio said. ‘So if you have them insuring a $40 or $50 million project, all owners would have to go after is their local surplus, which was just $5.5 million at the end of 2006.’
The company’s financial situation appears to have changed considerably since then. The company reported assets of $113,692,046, and a surplus over liabilities of $46,574,618, at the end of 2012, according to the insurance commissioner’s 2013 annual report.
But refusing to renew existing policies in order to avoid potential liability? It’s apparently not illegal, according to press reports.
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“refusing to renew existing policies in order to avoid potential liability? It’s apparently not illegal, according to press reports.”
the company’s approach sounds greedy and thoughtless. i’m shocked.
but there are consequences of relying on a legal solution that requires the insurer to renew existing policies. first off, do any states do this? I’m not up to googling it this morning.
if this became law in Hawaii, common business sense dictates that the insurer will find some way to exit the market permanently. there will be little incentive for a reliable business to enter the market.
the only solution at that point? more money from taxpayers to pay for another poorly managed government insurance program. someone will have to pay for it.
forcing a company to stay in a particular market forever is akin to a law that requires you to invest $5000 a year in Facebook. no thanks.
According to an article by Tom Callis in today’s Hawaii Tribune Herald,
The state Legislature created the Hawaii Property Insurance Association ‘in 1991 to provide insurance coverage for properties in areas, such as high-risk lava zones, where private insurance isn’t provided.”
He also reported that the HPIA has stated that it has “stopped providing new or increased coverage for properties south and east of Ainaloa and Hawaiian Paradise Park” but it will not cancel or fail to renew existing policies.
.
While the “no renewals” policy may be legal but is certainly unfair, I was rolling on the floor over an HNN (I think) report about a guy who had appx. $150,000 in lava insurance for his home for decades and he was complaining that they wouldn’t let him “up” his coverage to about 350,000 as the lava approached his doorstep.
Gimme a break.
Times surely do change. When the 1906 earthquake hit San Francisco, some buildings were destroyed by the quake, others by the fire that resulted from the quake. In those days, earthquake damage was not covered by the standard fire insurance policy. So in each case there was a question if the structure was destroyed by the earthquake or the fire … or perhaps partially destroyed by the quake, then finished off by the fire. Payouts were based on that information.
Several insurance companies simply bailed, rather than go broke paying the thousands of claims. The directors of the Hartford Fire Insurance Company voted to pay ALL claims in full and without regard to the earthquake/fire issue. As a result, the company went broke. They borrowed a million dollars from the Connecticut Mutual Life Insurance Company, resumed paying claims, and went broke again.
The directors met again and voted to put out a new stock issue at $100 a share. J. P. Morgan bought several million dollars worth based on nothing more than the company’s good name and reputation. The Hartford Fire Insurance Company paid all its claims in San Francisco and it has survived to this day, known simply as The Hartford.
That’s a true story, but I guess they never heard it in Korea.
Thanks, Jim, for the history lesson. We were pitched on Dongbu home insurance and decided against it for other reasons. I’m even happier about that decision in light of this chain of events.
The whole business of insurance is based on the principles of actuarial science. Each policy that is issued is like a bet. The insurer is betting that during the life of any policy they sell, they will not be paying out claims that exceed the amount they collect in premiums. Using actuarial tables, statistics, and risk assessments, the insurance company will win more of these “bets” than they lose. That is how the business works. That is the way it HAS to work, or an insurance company will go belly up. It is what governs whether or not a policy gets issued/renewed, and for how much.
At least, that’s the way it goes in today’s world. The industry simply cannot survive on operating as if a benevolent rich guy (stepping straight out from a Frank Capra movie) will step in every time to bail out an insolvent insurance fund. It cannot be governed out of people’s sense of fairness.
I do believe that the State’s (raided) “hurricane fund” should be called upon to fill the insurance gap should Dongbu quit when the going gets tough. Haven’t read about that idea anywhere, though. I can also imagine laws would have to be changed or amendments made.
Allen N states the obvious, of course.
Sue Savio should not be pointing fingers at Donbu while the companies she brokers have been guilty of doing the same bailing when a risk is deemed high by their calculations.