A new Vermont-based captive insurer is promising to provide insurance for New York affordable rental housing buildings at a time when advocates say coverage is difficult to afford or obtain.
The Milford Street Association Captive Insurance Co. will be owned by its member premium payers and will provide insurance only to New York affordable rental buildings that have a regulatory agreement limiting rents and receive public financing.
According to a New York Housing Conference March 2024 report, premiums for these landlords have been increasing at an annual rate of 21% over the last five years. Affordable housing advocates are concerned that rising insurance costs are restricting the development of new affordable housing and causing current operators to defer maintenance.
“This new collaboration offers a solution to the broken insurance market, a critical step to making sure New York encourages the creation and preservation of more affordable housing statewide,” said Rachel Fee, executive director of the New York Housing Conference.
Supporters of the idea contend that affordable housing properties with regulatory agreements have higher levels of maintenance and better risk mitigation programs than market rate and traditional rent regulated buildings, resulting in fewer and less expensive claims.
According to the founders’ announcement, they believe that by “changing the focus from profit to stability, simplifying overhead and operations and instituting tailor-made risk management controls,” Milford will be able to lower liability insurance premiums.
The captive aims to provide both primary (up to $1 million) and excess (up to $5 million above that) coverage. Milford Street says its premiums will be “significantly lower than what is available in the current market.” Insureds will also have to pay will be a one-time per unit returnable capital contribution and a small per unit association fee for startup and administrative costs.
Elliot Kroll and Huhnsik Chung, partners at the law firm ArentFox Schiff, served as advisors to the captive, which they say is a first-in-the-nation.
“This is precisely the purpose of an association captive – to provide the most cost-effective insurance solution for those who understand their risks and employ the best risk management practices,” said Kroll.
Founding members of the Milford Street Association include affordable housing advocates Peter Davis, J Cubed Residential; Susan Camerata, Wavecrest Management; John Crotty, J Cubed Residential; Ruben Diaz, former City Councilor and state Assembly member; Nicole Ferreira, nonprofit mortgage lender CPC Mortgage; and John Murphy, private equity investment Murphy & Partners.
“The creation of Milford was a necessity if our industry is to survive,” said Crotty of the Work Force Housing Group and a founding member of Milford Street.
Milford Street is domiciled in Vermont and will be regulated by that state’s insurance regulator. The announcement said that the program has been reviewed by the New York State Department of Financial Services (DFS). Avid Solutions Insurance Management of East Montpelier is the captive’s manager.
S&P Global Ratings said in a new report that the high-cost structure within the rental housing sector in 2023 remained consistent with 2022, with maintenance and repair, insurance premiums, and payroll-related expenses representing the largest share of operating costs. In some regions, insurance premiums and limited coverage pressured margins, particularly for stand-alone projects more exposed to natural disasters and physical climate risks.
The announcement of the new captive insurer comes about two weeks after New York DFS regulators issued guidance to insurers regarding affordable housing properties. Under the guidance, commercial insurers are prohibited from inquiring about or making coverage decisions based on a property’s status as an affordable housing development or a tenant’s source of income.
The guidance is in a circular letter that implements a new law signed in April by Governor Kathy Hochul. The new law is part of the state’s efforts to build more affordable housing and prevent unfair discrimination in real estate sales and rentals.
In November 2022, DFS and the state housing agency, Homes and Community Renewal (HCR), published a report concerning property/casualty insurance for buildings with affordable or subsidized housing units. Developers of affordable housing indicated they had experienced significant premium increases or difficulty obtaining policies for affordable housing developments.
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