Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Consumer Protection and Commerce, to which was referred H.B. No. 1156 entitled:

begs leave to report as follows:

The purpose of this bill is to request that the Hawaii Hurricane Relief Fund (HHRF) develop a plan to establish a captive insurance company in Hawaii to receive moneys from the dissolved HHRF and reinsure the Hawaii Insurance Guaranty Fund (HIGA) for claims under hurricane insurance policies left unpaid by insurer insolvency due to a covered event.

HHRF, the Department of Commerce and Consumer Affairs, Department of Budget and Finance, Hawaii Independent Insurance Agents Association, and a private individual testified in opposition to this measure.

Your Committee finds that:

Your Committee finds that HHRF has fulfilled its initial purpose of stabilizing the property insurance market. This is reflected in the decision of HHRF's board of directors to suspend HHRF's insurance program on December 1, 2001, and its day-to-day physical operations, soon thereafter.

Your Committee finds that the State is now faced with determining the most appropriate disposition of the funds in HHRF, which currently is estimated at $175,000,000. Your Committee believes that the most practicable and responsible use of HHRF funds is to continue to use them for the purpose for which they were collected--to protect the public interest in the event of a hurricane.

Although there have been calls to return these moneys to policyholders, your Committee understands that it would be difficult, if not impossible, to allocate these funds among contributors. The funds in HHRF are the contributions of homeowners under the special mortgage recording fee, and of insurers who have written homeowners and other property and casualty lines of insurance in this State. HHRF laws require only a three-year retention of insurer records of policies, and policies are renewed every year. There is unlikely to be sufficient information to separate out the moneys in HHRF by contributor since 1993, and it would be inequitable to return funds only to those who have records of their contributions.

Moreover, a return of funds would do nothing to assist the public in the future, in the event of another devastating hurricane like Iniki. It may actually adversely affect Hawaii's ability to obtain federal disaster relief funds in the future.

Your Committee finds that, as received, this bill would only benefit a narrow segment of the public. In essence, this bill would primarily benefit insurers who became insolvent, and the solvent insurers who would be assessed by HIGA to pay the insolvent insurer's claims.

Thus, your Committee has amended this measure by deleting its substance and inserting provisions providing that the moneys remaining in HHRF upon dissolution will be deposited into the Emergency Budget and Reserve Fund (EBRF). Your Committee finds that there is no question that another hurricane like Iniki will hit the islands. When this occurs, moneys in the EBRF will be there to strengthen Hawaii's economy and help Hawaii rebuild.

In addition, your Committee has amended the effective date to July 1, 2001. In the event another measure is enacted this year to repeal HHRF, this bill will take effect one day before the effective date of that measure if that measure takes effect before July 2, 2001.

As affirmed by the record of votes of the members of your Committee on Consumer Protection and Commerce that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 1156, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 1156, H.D. 1, and be referred to the Committee on Finance.