KAILUA-KONA — As lava from the Kilauea eruption continues to decimate property in Puna, insurance companies have placed a freeze on selling insurance in the area.
A moratorium on new policies during natural disasters isn’t uncommon, insurance representatives said, but, unlike with a hurricane, for example, there’s no timetable when it comes to lava to be able to say when it will be lifted.
The flow started May 3.
“We’re kind of flowing along with it,” Kim Silva, State Farm Insurance sales executive in Hawaii. “Our hope is that it won’t be there forever.”
State Farm stopped writing policies for homes in the two highest-risk lava zones in the 1990s, but the company grandfathered-in existing policies.
Company policies cover fire from volcanic activity, but typically under different types of coverage, such as fire coverage for a home that lava causes to ignite. Earthquake damage — 500 rumblers were recorded at the volcano’s summit in one 24-hour period alone recently — falls under earthquake coverage and should a tsunami cause havoc, flood insurance would be the proper coverage to have.
But the reason for the moratorium is because people often try to make sure they’re covered when damage suddenly seems inevitable.
“It’s just human nature,” said Silva, who couldn’t provide an estimate of the number of policyholders in Lava Zones 1 and 2 the company had or damage loss it expected to cover. “People start to panic.”
Homeowners in the designated southeastern zones, which were identified as high risk lava areas, are not without options.
The Hawaii Property Insurance Association, a nonprofit collection of insurance companies, was created by state lawmakers in 1991 to ensure just that. The law requires private companies to pool their money to offset the expense of offering insurance in high-risk lava zones — a safety umbrella, of sorts.
The private market stopped selling after Kalapana was decimated and companies suffered huge losses.
By 2008, there were more than 2,400 HPIA policies in the area, providing more than $700 million worth of insurance to the highest-risk lava zones on Hawaii Island, according to the Grassroot Institute of Hawaii, a nonprofit research and educational institution that champions for accountable government.
Today, HPIA has nearly 600 homes insured in Lava Zones 1 and 2, according to HPIA. The public relations department said it will not publicly release its damage estimates for the current flow.
HPIA pointed out in an email with West Hawaii Today that in most cases, lava causes two types of damage, fire and smoke — usually fire. Both are covered by policies issued to HPIA’s insureds.
But as far as people trying to get new insurance now, HPIA has implemented a six-month waiting period.
It will, however, issue policies for homeowners who are being non-renewed by their insurer with no waiting period as long as they can prove they have insurance in effect.
But as far as the reason for the waiting period during a perilous time in an area that was a major reason HPIA was created, it referred to the Hawaii Revised Statutes that authorizes it to sell and place a maximum six-month waiting period in disaster areas where other companies have issued moratoriums.
HPIA is funded through premiums paid by its policyholders. The agency said if damage incurred outside the zones exceeds adequate funds, it has the statutory ability to assess all member insurers.
One lesson insurance representatives said that could be taken away from the crisis is knowing in detail what coverage a person has. They also suggested keeping insurance papers among the items of value that a homeowner would first grab should they be forced to evacuate on short notice.
“Know your agent, find an agent you can rely on,” said Tad Nottage, president of Aloha Insurance in Kailua-Kona, who had three policyholders in Leilani Estates who sustained damage during the initial days of the flow. One was properly covered, the two others were not, but all knew beforehand exactly what they had.
But the 30-year businessman said he wouldn’t be surprised if this eruption has a long-lasting effect on insurance, such as banks requiring specifically crafted lava insurance on mortgages or loans because the impact on companies will be too great when all is said and done in Puna.
“I think it’s going to hit them hard,” he said.