On Jan. 11, Frank Woodruff, the executive director at the Community Opportunity Alliance (formerly NACEDA), a Washington, D.C.–based nonprofit alliance of community development organizations, received a disturbing letter from his insurance broker. The letter, dated Jan. 9, was a “customer alert” from Travelers, the Community Opportunity Alliance’s insurance provider, and it stated in no uncertain terms (and all caps) that the alliance’s insurance coverage was going to be canceled.
“ACCORDING TO ITS WEBSITE [NACEDA]’S OPERATIONS INCLUDE COMMUNITY DEVELOPMENT. COMMUNITY DEVELOPMENT OPERATIONS ARE INELIGIBLE AND ARE OUTSIDE OF OUR RISK APPETITE. THEREFORE, WE ARE NON-RENEWING YOUR POLICY …”
Woodruff was alarmed and puzzled. The Community Opportunity Alliance doesn’t own or manage real estate, and is not a developer. Nor had it given Travelers any reason to question their business relationship. While insurer-initiated nonrenewals are not uncommon, they usually follow a series of claims from the insured party, and the Community Opportunity Alliance hadn’t made an insurance claim in over a decade. Woodruff contacted his insurance agent, Natalie Stephenson, as well as Shelterforce.
When Shelterforce contacted a Travelers representative, the publication was told that the nonrenewal had been issued in error, and had already been withdrawn. Woodruff contacted Travelers after that call, and a customer service representative told him yes, it had been a mistake, but Woodruff says the nature of the error was still cause for alarm.
“I talked to a woman who said, ‘We misunderstood your business. You don’t do actual development, like bricks and mortar development. So it was our fault for not understanding the business more carefully. So we’re offering you renewal,’” says Woodruff.
While that might have been good news for the Community Opportunity Alliance, it’s troubling news to the rest of the community development sector, since the implication was clearly that if COA had been doing community development work, as the thousands of organizations it serves do, that the cancelation would have remained. This leaves community developers to wonder if, on top of rising property insurance rates, insurers are preparing to abandon them entirely.
Travelers did not respond to requests for further clarification about why it has decided community development is “outside of its risk appetite” and what that means for its decisions going forward.
Travelers is open about using AI, and other big insurance companies using AI in their underwriting processes have faced lawsuits and accusations of discrimination stemming from outcomes produced by algorithms. (There is no evidence that Travelers used AI in making its determination about COA’s policy, or about community development in general.) While using AI to decide who gets insurance at what rates may seem like a new frontier in objectivity, underwriting decisions made by algorithm can be just as flawed as ones made by humans.
“There are, especially with big data, plenty of actuarially valid ways to assess risk, so choices are always made and that decision process tends to involve human judgment (or human-trained machine judgment) that is not neutral,” says Douglas Heller, director of insurance at Consumer Federation of America. “‘This a data-driven risk-based evaluation,’ they will say, and that is a summary that masks the choices they made to get there.”
An insurance nonrenewal can be disastrous for a community developer; many are required by their investors and lenders to carry a certain level of coverage. If they’re unable to obtain another traditional policy, they may have to turn to the excess and surplus lines market, where premiums are much higher, and the industry is less regulated. As conventional insurers have raised premiums and pulled out of some high-risk markets in response to extreme weather caused by climate change, this secondary market has ballooned, growing by over 32 percent in 2022, and 15.9 percent in the first half of 2023.
Travelers has faced accusations of discrimination before. In a 2016 lawsuit, the National Fair Housing Alliance (NFHA) alleged that Travelers violated the Fair Housing Act by systematically denying coverage to landlords who rented to tenants using Housing Choice Vouchers. The plaintiff’s complaint alleged that, in 2015, NFHA deployed trained testers to call five insurance agencies in the D.C. area and inquire about quotes for habitational insurance on a property with tenants using housing vouchers. “In each instance,” the filing states, “the broker explained to the tester that ‘Travelers would not underwrite the policy because of the presence of voucher recipients in the building.’”
Before that, landlords in San Jose, California, sued Travelers for nonrenewing their policy in 2012 after learning that the landlords rented to tenants using housing vouchers. This lawsuit, filed in federal district court in 2013, reached a confidential settlement in 2015.
The NFHA lawsuit was settled in 2018, with Travelers admitting no wrongdoing but agreeing to a host of conditions including paying $450,000 in damages, employee retraining, and a commitment to refraining from asking about source of income when underwriting policies in the District of Columbia.
If Travelers were to start issuing nonrenewals based on an organization merely doing community development work without reference to the residents of buildings they might develop, it is unclear if the legal precedents would carry over. But if it emerged that the nonrenewal was tied to resident profiles, Travelers could be treading in perilous legal territory, says Eric Dunn, director of litigation at the National Housing Law Project.
“If the reason for non-renewal has to do with particular characteristics of the individuals participating in a community development program, that is almost certainly going to have disparate impacts on protected class members (likely race, national origin, or disability among other possibilities),” says Dunn.
A couple of weeks after Frank Woodruff’s initial shock, he received an official letter, dated Jan. 22, notifying the Community Opportunity Alliance that its nonrenewal was being reversed. “The notice of cancellation originally sent to you is hereby withdrawn,” the letter read, but gave no further details.
But while Travelers was willing to take the Community Opportunity Alliance back, the alliance’s executive director was initially hesitant. “Travelers made clear in their original letter to us that they have a policy against insuring community developers,” says Woodruff, and “our preference would be to work with a company who actually wants to work with us.” But in the end, after facing cost and time constraints, they felt they have to move ahead with the renewal. “Without them, we have few places to go.” As insurance challenges hit affordable housing from many directions, hopefully it will not reach a point where community developers themselves have nowhere to go.
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