In SB 799, the Hawaii state legislature proposes creating a parametric risk transfer facility which would move hurricane risk into the private market with insurance and reinsurance carriers.
The bill explains that parametric, or index-based, insurance solutions settle claims on the characteristics of a disaster, as opposed to the loss sustained from the disaster. The bill further explains that unlike traditional insurance, parametric solutions do not require lengthy loss adjustment processes, instead enabling rapid disbursement of payouts to maximize liquidity and allow for flexibility in the use of the proceeds. The trigger for parametric insurance coverage for a natural disaster could be based on the maximum wind speed of the hurricane as it passes through a specific covered area, such as maximum winds of ninety-six miles per hour or higher.
The legislature finds that total losses from a storm making landfall near Waikiki with the same force as Hurricane Iniki could cost twenty to forty billion dollars in direct economic losses. Although some property losses would be covered by personal insurance, the vast majority of losses would fall on the State and counties, and thus, the taxpayers. A parametric insurance transfer could move residual risk off the State's budget and onto the private sector.
A parametric disaster insurance special fund would be created under the bill. Appropriations from the legislature to fund the program would be required. Money in the parametric disaster special fund would be used to purchase parametric disaster insurance for the State. The Act would establish a three-year parametric disaster insurance pilot program. Currently, the bill has passed the first reading.
