The Real Cost of Being Underinsured in Hawaiʻi’s Construction Market
Reading Time: 3 – 4 Minutes
Key Takeaways
Hawaiʻi’s construction costs are already among the highest in the nation, and post-disaster demand pushes them even higher.
For homeowners who have not updated their coverage limits in years, there may be a significant gap between what their policy pays and what rebuilding actually costs.
Insurance payouts after disasters can fall short of actual rebuilding expenses.
Outdated property valuations and assessment records contribute to policies that underreport true replacement value.
Reviewing and updating your coverage limit is one of the most practical steps you can take to protect your home and your finances.
Disclaimer: This article is intended for general informational purposes only and does not constitute legal, financial, or insurance advice. Coverage terms, limits, and conditions vary by policy. Homeowners should consult a licensed insurance professional to review their individual coverage needs.
Hawaiʻi's housing market has changed dramatically over the past two decades. Home values have climbed, construction costs have surged, and rebuilding after a loss costs far more than it once did. Some local homeowners may have homeowners insurance coverage limits that no longer reflect what it would actually cost to rebuild their home today, particularly those who have made significant improvements to their property or have not reviewed their policy in light of recent construction cost increases. The gap between what a policy pays and what rebuilding costs is real, and it can catch homeowners off guard.
Hawai'i's Construction Costs: Already High, and Rising
Building in Hawaiʻi costs significantly more than it does in most parts of the country, even before a disaster strikes. According to a RAND Corporation analysis, construction costs in Hawaiʻi run roughly 20% above the national average [1].
When a major disaster strikes, those costs climb even further. Rebuilding requires bringing in contractors and specialized labor from off island, which drives up expenses considerably. One industry analysis found that reconstruction labor costs in Hawaiʻi can run approximately 40% higher than comparable work on the Continental U.S. [2].
Beyond labor, disaster recovery creates what economists call a demand shock, a sudden surge in need for materials, equipment, and workers that the local market cannot immediately meet. This competition pushes prices up and stretches timelines out, meaning homeowners often wait longer and pay more than initial estimates suggested [3].
What Recent Disasters Have Shown
Hawaiʻi's recent experience with disaster recovery has made the consequences of underinsurance difficult to ignore. Replacing homes lost in wildfire events on Maui in 2023 has cost an average of approximately $1 million per residence, a figure that has far exceeded the coverage limits of many homeowners policies [4].
In a documented case, one homeowner received insurance payouts of around $430,000, only to find that rebuilding their home would cost closer to $1.2 million. That gap of roughly $770,000 – not counting tens of thousands more in permitting costs – fell to the homeowner to bridge [5].
Part of what made this so difficult for many families is that their policies were based on estimates that are now outdated and do not match current values. In some cases, property valuations across Hawaiʻi have been based on assessment records that are decades old, even as home values have risen sharply. On Maui alone, home values have increased approximately 340% since 2000 [4]. A policy written to reflect what a home was worth twenty years ago is unlikely to reflect what it costs to rebuild that home today.
Why Homeowners are Caught Off Guard
The replacement cost gap is not usually the result of a bad policy or a bad insurer. In most cases, the gap widens slowly over time. While insurers apply annual inflation adjustments to coverage limits, those adjustments are based on standard cost indexes and may not capture the full impact of significant renovations, custom upgrades, or Hawaiʻi's unusually sharp post-disaster cost increases. Homeowners who have made improvements to their property without notifying their insurer are especially at risk.
Standard insurance policies also typically cover replacing what existed before, not the increased costs associated with rebuilding to current codes, using current materials, in a market where demand has shifted [3]. That distinction matters in Hawaiʻi, where building standards have evolved and where the cost of everything from lumber to electrical work has changed considerably.
Steps Worth Considering
Reviewing your current coverage does not have to be complicated, but it does require some attention to current market conditions. A few practical steps:
Compare your homeowners insurance coverage limit to current local construction costs. Per-square-foot costs in Hawaiʻi vary by island and property type, but a licensed contractor, your local insurance agent, or your insurer may be able to help you find a reasonable baseline.
Notify your local insurance agent after renovations or major improvements. Upgrades that add value to your home can also widen the replacement cost gap if your coverage limit is not adjusted accordingly.
Work with a licensed insurance agent who knows the Hawaiʻi market. Local expertise matters when construction costs vary significantly from national averages.
The Cost of Waiting
Hawaiʻi communities are resilient, and most families who experience a loss want nothing more than to rebuild and stay. Having adequate coverage – a homeowners insurance policy limit that reflects what it actually costs to reconstruct a home in today's Hawaiʻi market – is one of the most important tools a homeowner has to make that possible.
A coverage gap of hundreds of thousands of dollars can turn a recoverable situation into a much harder one. Reviewing your policy regularly, working with your insurance agent to update your insurance policy limit as you make home improvements and construction costs rise, and asking your insurance agent the right questions are steps that can make an enormous difference when it matters most.
Connect with your local insurance agent today to learn more.
Frequently Asked Questions
While insurers typically apply an annual inflation adjustment to coverage limits, those adjustments may not fully account for significant home improvements, major renovations, or the sharp increases in local construction costs that Hawaiʻi has experienced in recent years. Homeowners play an important role in keeping their insurer informed of changes to their property.
Construction costs in Hawaiʻi run roughly 20% above the national average, and labor costs can climb approximately 40% higher after a disaster [1][2].
It is the difference between what your insurance policy pays out and what it actually costs to rebuild your home in today's market.
A licensed insurance professional familiar with the Hawaiʻi market can help you compare your current limit against local per-square-foot construction costs.
Sources
1. RAND Corporation. Disaster recovery creates its own bubble. September 2023. https://www.rand.org/pubs/commentary/2023/09/disaster-recovery-creates-its-own-bubble.html
2. Cotality. Maui fire update one year later: Lahaina rebuild in focus. August 2024. https://www.cotality.com/insights/articles/maui-fire-update-one-year-later
3. Ostermann S, Liel AB. Why it's hard for disaster survivors to rebuild safer, sustainable homes. Honolulu Civil Beat. November 2024. https://www.civilbeat.org/2024/11/why-its-hard-for-disaster-survivors-to-rebuild-safer-sustainable-homes/
4. Honolulu Civil Beat. Maui County faces huge funding gap for wildfire recovery. March 2025. https://www.civilbeat.org/2025/03/maui-county-huge-funding-gap-wildfire-recovery/
5. Honolulu Civil Beat. 2 years after deadly fire, Lahaina struggles to rebuild. August 2025. https://www.civilbeat.org/2025/08/2-years-after-deadly-fire-lahaina-struggles-to-rebuild/
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