Redlining

Redlining in Affordable Housing Insurance

One of the more challenging issues facing affordable housing developers is difficulty obtaining and maintaining insurance. Just as with all businesses, developers and housing projects require insurance to protect lenders, investors and the developers themselves against loss due to fire, injury, mismanagement and a host of other issues relevant to all business operations.

Over the last few years, insurance costs have skyrocketed, coverage has constricted, and competition has decreased on insurance policies that developers need to build and maintain affordable housing. Out-of-control insurance costs mean that some affordable housing projects are not being built, while other projects must pass the higher costs on to tenants in the form of larger rent burdens. Evidence suggests that these hurdles may be based on old stereotypes about affordable housing and the people who occupy these units.

A California Reinvestment Coalition survey of 40 housing providers in the state – who collectively are responsible for building and managing more than 48,000 units of housing - reveals that insurance problems are pervasive. Insurance carriers, brokers and agents are asking affordable housing developers questions about their projects, about the households who will live there and about the existence of any public financing that can label a project “affordable” or “subsidized.” Documents uncovered suggest certain insurance carriers do not want to write insurance policies for affordable housing developers and their projects.

CRC believes the higher insurance premiums, denials, nonrenewals and restrictions for affordable housing developers are not justified by any perceived additional risks. Affordable housing in California is well-built and well-managed. Thankful residents are less likely to file insurance claims against the community-based organizations that provide them with stable housing. Additionally, the multilayered financing structure of most affordable housing projects means that more government agencies, investors and lenders will scrutinize affordable housing deals than most market rate housing projects. The result is that affordable housing projects probably have fewer insurance claims than market rate housing.

In 2004, CRC teamed up with the California Coalition for Rural Housing (CCRH) to sponsor AB 421, a bill authored by Darrell Steinberg. The bill was designed to address the problems raised by CRC=s survey of insurance access. AB 421 would have made it illegal for insurance carriers to discriminate against affordable housing projects in the pricing and underwriting of insurance coverage. In light of strong industry opposition to the bill’s consumer protection requirements, the bill was amended to focus on a study of the problem, which was completed in late 2005. 

A continuing advocacy effort is needed to protect communities from discriminatory insurance practices that are not based on valid assessments of risk, but on misunderstandings and myths about affordable housing and the residents who rely on this housing. California has an abundance of high-quality affordable housing developers whose properties have proven to be safe risks for insurance companies. This should be reflected in greater access to low-cost policies, not lesser.  These discriminatory insurance practices significantly impede economic opportunity for California families and lead to under-investment in neighborhoods.