How Developers Are Dealing With Today’s Insurance Challenges

Over the past decade, insurance has become a significant concern for multifamily affordable housing owners. Increasingly litigious activity around a variety of liability areas, combined with challenging environmental conditions in many parts of the country, has resulted in higher premiums and increased deductibles, further squeezing operational costs in already stressed deals.

Multifamily owners are typically covered by two types of insurance: property insurance, which protects against physical events and site damage, and casualty insurance, also known as liability insurance, which broadly covers tenant activities.

Fortunately, owners are beginning to see some relief. “We’re beginning to see more competition and more positive renewals on the property side, which translates, for some people, to seeing modest decreases in their premiums,” says Thom Amdur, senior vice president for policy & impact at Lincoln Avenue Communities.

A recently published survey from the National Multifamily Housing Council (NMHC) confirms Amdur’s experience, showing that property insurance rates have declined industry-wide for the first time since 2017. Amdur attributes this to some much-needed “equilibrium” in the property insurance marketplace. “The cost of capital and pricing of policies is more in sync with claims, with some profit margin for the insurance underwriters. And that’s, kind of, what’s happening globally on the property side.”

However, the liability side of the insurance market remains challenging. “A lot of folks, including ourselves in our most recent renewals, are seeing increases in our premiums for our casualty policies,” says Amdur. “That’s driven by a series of factors: big judgments in a variety of states; the dynamics around litigation funding that’s extending defense of claims; and bigger settlements (or bigger jury awards when they do go to trial). It’s hard to see that dynamic changing much in the next little while, barring policy interventions.”

For example, a collective of landlords in New York City reported approximately a doubling of their liability premiums from 2020 to 2025. The landlords estimate that around 25 percent of the rent tenants pay now goes to insurance.

Increases in liability premiums affect certain parts of the country more than others, with areas that the American Tort Reform Association calls “judicial hellholes” often being the most challenging. In these areas, Amdur says, “You have to underwrite significantly higher insurance premiums, and that affects transactional feasibility.” This directly impacts the amount of affordable housing that developers can provide to those areas, no matter how badly needed. “We probably do less development as a result of that in markets where it’s harder to place insurance,” says Amdur.

These increased insurance costs don’t exist in a vacuum. The myriad effects of a highly inflationary environment, such as higher interest rates, payroll, and utility costs, can often compel owners to cut back on basic services, defer necessary maintenance to cover debt service and insurance premiums, and prevent the property from defaulting and foreclosing. This could result in what Amdur calls an “operating crisis.”

“At the very least,” Amdur says, “if you’re being forced to defer maintenance on properties because of your rising operating costs, it’s probably putting your property at greater risk for some kind of event that may result in an insurance claim.”

Amdur says that, with or without changes to the legal environment, it is largely incumbent on owners to build resiliency and sound operations into their properties to mitigate risks and protect both the asset and the tenants.

“We’ve added a lot more discipline to our operations plans, as well as how we do due diligence on new properties with that knowledge in hand…and being proactive about identifying potential risks that could result in an insurance claim as we’re evaluating acquisitions or designing new properties.” Amdur says that utilizing new technology, such as internal water detection systems and enhanced fire-suppression devices is a “much bigger part of our go forward strategy, both from designing new properties, rehabs and resyndications, as well as moving forward and adapting and incorporating those types of systems into our existing portfolio where they don’t already exist.”

RLL’s Innovations Lead to Cost-Savings Solutions
One company providing a potential lifeboat in the rising waters of insurance premiums is RLL, a risk-management organization offering an insurance product to cover small- and medium-sized claims that traditional insurance can’t support.

“It’s priceless to me,” says Craig Stenson, whose work as asset manager at MetroPlains has him overseeing the company’s entire insurance portfolio.

RLL’s multifamily product allows owners to add an entire building’s units at around $10 per unit per month. Owners typically cover the costs themselves for affordable deals, whereas with market-rate, they can pass this cost along to the resident. This policy covers $100,000 per occurrence for the five most common accidental, resident-caused perils: fire, smoke, explosion, sewer backup, and water discharge.

With these coverages, RLL steps in to cover renter-induced damages, which Stenson says have become MetroPlains’s “biggest insurance claims.”

Stenson recounts a tenant who, feeling too hot from their radiator, opened their windows in the middle of winter in North Dakota. As a result, the radiator froze, causing the pipes to burst and flooding the six units below. “That was 100 percent covered by RLL,” says Stenson.

Stenson says they’ve worked with RLL on at least three claims between $60,000 and $80,000 directly caused by tenant action. “I’ve been looking for a program like this forever,” Stenson says. “The insurance market has gotten so difficult and has constricted so much. We used to be able to have a negotiation, and we used to be able to shop around and see who was going to have the best offer. And we’ve swung so far, the other way that, in my mind, we are now just begging to get insured.”

Beyond covering these repair costs—no small boon—RLL can also ease the administrative burden of managing multiple renters’ insurance policies, says John Glenn, RLL’s director of sales. “You can have a 5,000-unit portfolio with 72 different renters’ insurance carriers on it. And each one of those carriers has their nuances and verbiage and coverage, etc.”

And, critically, RLL can lower a building’s other insurance premiums, since RLL’s coverage kicks in first. “Smaller claims common to multifamily don’t even hit the property insurance,” says Glenn. This means owners can keep their loss ratios down, theoretically leading to lower premiums.

Glenn recounts an instance where a resident at an RLL-covered property in Atlanta was cooking bacon and started a grease fire. This caused widespread fire and water damage, resulting in approximately $100,000 in damages across several units. Traditionally, the owner would have gone through their general liability insurance, causing an increase to either their premium, deductible, or both, leaving them to either pay out of pocket or more in the long run.

“The site staff has enough going on with property operations,” says Glenn. “RLL makes things easier.”