HUD Convenes Summit to Address Rising Property Insurance Costs

In the last issue, we highlighted a letter concerning rising insurance costs from a broad coalition of housing providers to members of Congress and the Biden administration. The letter highlighted the fact that as of the fourth quarter 2023, U.S. property insurance rates have increased for 25 consecutive quarters. And U.S. casualty insurance rates have increased for 17 consecutive quarters. Further, over the past three years, insurance premiums have been subject to unprecedented increases, with providers reporting annual premium increases ranging from 30 percent to 100 percent for affordable rental housing communities.

In response to growing concerns about insurance costs in affordable housing, HUD recently held an all-day summit on property and liability insurance in affordable housing. The summit was hosted by Acting HUD Secretary Adrianne Todman and Federal Housing Administration Commissioner Julia Gordon.

“It’s become abundantly clear that the rising cost of insurance is causing harm to homeowners, renters, housing providers, and entire communities,” said Secretary Todman. “Today, we took a historic step to bring all of our stakeholders together in one place so we can determine solutions to protect the people we serve and preserve and create affordable housing and lower housing costs for all.”

Over the past several years, affordable housing providers have experienced significant increases in property insurance premiums and deductibles, reductions in coverage, added requirements, and withdrawals of insurance companies from certain markets. Unlike owners who provide market rate housing, affordable housing providers generally cannot pass on insurance cost increases to tenants through increased rents.

How sites are coping with costs. According to HUD, its staff has noted that individual affordable housing properties faced with suddenly higher insurance costs are coping in short-term ways such as reducing coverage, choosing a higher deductible, changing insurers, reducing services or amenities to cut costs, and using property reserves to cover higher premiums. Owners have also reported that they may have to resort to delaying capital repairs or sales of properties and consolidation of portfolios.

HUD’s response. HUD says it has been reviewing its policies for opportunities to address industry challenges due to market trends while managing potential risks. Here are some HUD actions that were highlighted at the summit:

• HUD recently updated its multifamily insurance deductibles to address the rising costs of wind and storm coverage, reducing costs for owners while continuing to ensure that properties have adequate insurance coverage.
• HUD’s new Federal Flood Risk Management Standard (FFRMS) protects communities from flood risk, heavy storms, increased frequency of severe weather events and disasters, changes in development patterns, and erosion. By implementing the FFRMS, communities can become resilient to flooding, protect lives and properties, minimize damage to households, reduce insurance costs, and safeguard federal investments—ensuring that federally funded construction projects are built to withstand current and future flood risks.
• HUD revised its methodology for calculating how contract rents are set in Section 8 project-based rental housing to better account for rising insurance costs among property owners in their overall operating cost.
• HUD’s Office of Public and Indian Housing has been holding listening sessions with Public Housing Insurance Risk Pools to gain a better understanding of the insurance environment, localized challenges, and solutions already underway. HUD clarified that Public Housing Authorities (PHAs) may submit an appeal of their Operating Fund Project Expense Level (PEL) if the PHA’s total operating costs, including the costs of insurance, have increased to a level that exceeds the PEL eligibility amount. A successful appeal would result in increased funding for the PHA.