Sunday, November 10, 2024
Hawai'i Free Press

Current Articles | Archives

Sunday, October 27, 2024
Self-Insurance Is No Insurance
By Tom Yamachika @ 6:00 AM :: 785 Views :: Hawaii State Government, Politicians, Cost of Living

Self-Insurance Is No Insurance

by Tom Yamachika, President, Tax Foundation Hawaii

One of our newer lawmakers recently penned a piece, “Consumer-Centered Property Insurance Can Help Condo Owners” (Civil Beat, Oct. 18), floating the idea that condominium associations should consider self-insurance as one way to deal with the difficulties, costs, and practicalities of getting insurance for condominium common areas.

The author notes that self-insurance entails putting away a large amount of money in reserve for disasters, which is what insurance companies insuring such disasters do.  Can’t you just cut out the middleman then?

The short answer is that self-insurance is no insurance.  People have to rely on the self-insuring company’s size, availability of large monetary reserves, and ability to raise more money should the need arise.  That’s why governments sometimes insure themselves.  The federal government, for example, self-insures against traffic accident liability.  It’s big enough to pull it off, and it has the power to tell states that mandatory insurance coverage laws don’t apply to it.

In contrast, the typical condominium association is several orders of magnitude smaller than a typical government.  Lenders, both lending to the association and to its constituent members, often impose strict insurance requirements as conditions for providing new or keeping existing financing.  In addition, condominium associations are always facing pressure to deal with occasional but costly results of aging such as concrete spalling, road deterioration, and water incursion damage.  They simply might not have the ability to keep a large wad of cash around while association members clamor for reducing maintenance fees.  In short, the typical condominium association would have a tough time maintaining self-insurance.

One variation on the idea that might be more easily accepted and accomplished is called captive insurance.  In a typical captive insurance scenario, one large company or a collection of several companies with common interests pays into a fund.  The fund then gets turned into a mini-insurance company so the fund can’t be touched unless a disaster, or other risks that the captive company agrees to insure, occur.  One advantage to doing it this way is that a captive insurer is a legitimate insurance company and, as such, is allowed to buy reinsurance on the secondary market (a privilege denied to mere mortals and ordinary companies).  With reinsurance, the insurer can elect to cover losses up to a certain size, for example, with the reinsurer stepping in when losses go from bad to ridiculous.

Another advantage to this route is that Hawaii has plenty of experience with captives since it became a captive domicile in 1986.  Indeed, at about this time last year Hawaii received the 2023 Domicile of the Year Award at the U.S. Captive Review Awards held in Vermont.  The award was given in the so-called heavyweight category, domiciles that were able to boast gross written premiums of more than $5 billion.  At the time, Hawaii had 263 captive companies from across the U.S. as well as Asia and the Pacific. As of December 31, 2022, Hawaiʻi was ranked as the fifth-largest U.S. captive domicile, and the eighth-largest globally, by number of captive companies licensed. In addition, in 2022, the Hawaiʻi captives had written premiums of $15.6 billion, an increase of $3.3 billion from the previous year and the largest increase in captive written premiums of all captive domiciles globally in 2022.

We offer this as an alternative to self-insurance for folks trying to find options in our current insurance crisis.

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

Aloha Pregnancy Care Center

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii

FIRE

Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Habele.org

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii Military History

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Together

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

July 4 in Hawaii

Land and Power in Hawaii

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

MentalIllnessPolicy.org

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

Natatorium.org

National Parents Org Hawaii

NFIB Hawaii News

NRA-ILA Hawaii

Obookiah

OHA Lies

Opt Out Today

Patients Rights Council Hawaii

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii

RailRipoff.com

Rental by Owner Awareness Assn

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

School Choice in Hawaii

SenatorFong.com

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii