A recent study from NLHA shows that rising insurance rates are among the most acute issues facing multifamily housing providers. In 2022-2023, the study shows that nearly 30% of housing providers saw increases of 25% or more in a single year. The study summed up the issue succinctly: Housing providers are experiencing steep rate increases across lines of insurance. Deductibles are rising, and restrictions or changes in policies are becoming more common, as are reductions in limits. With this trend in mind, USDA Rural Development has taken a step to provide assistance and protection to stakeholders in USDA multifamily programs.
USDA/RD Proposes Insurance Coverage Changes
On October 25, 2023, the Rural Housing Service published a proposed rule, “Insurance Requirements in Multi-Family Housing Direct Loan and Grant Programs,” in the Federal Register. The aim is to update insurance coverage and deductible requirements for properties for multifamily housing financed through Rural Development (RD). RD says this rule will align RD MFH insurance coverages and deductible limits with current affordable housing industry standards. Comments on the proposed rule must be received on or before December 26, 2023.
Outdated USDA/RD Insurance Requirements
USDA/RD says that 7 CFR part 3560 consists of outdated insurance requirements. The coverage amounts and deductible limits were established on November 26, 2004. “The changes proposed by this regulatory action will update insurance coverage and deductible requirements to current dollar values,” USDA/RD says in the proposed rule. “The agency intends to align RD insurance coverages and deductible limits with affordable housing industry standards.”
USDA/RD goes on to say that insurance premiums, including those for hazard/property insurance required by the Agency, are increasing due to changes in the insurance industry, such as the increasing of insurance rates in part due to increased catastrophic events. The agency says that “stakeholders will benefit from these proposed changes through lower insurance premiums and more flexibility in choices of coverage and deductibles. The current low deductible limits result in higher premiums. This proposed rule will allow higher deductible limits and will provide flexibility to the owner to select a deductible that can lower the premium costs.”
Historic Rationale for Disaster Insurance
USDA/RD says that when a disaster affects multifamily housing, and the coverage is less than the industry standard of 80% of replacement cost value, needed multifamily housing properties have been lost/abandoned because of insufficient coverage amounts. Properties were unable to be rebuilt, and communities in need of affordable housing lost housing units.
“This proposed rule intends to assist stakeholders by providing the financial capacity to build back needed affordable housing units,” the agency says. “Our rural communities will benefit and be able to maintain affordable housing units.”