Amber Lynch, executive director of Invest DSM in Des Moines, Iowa, had a feeling that the organization’s insurance premium was going to go up in 2023. Iowa has endured a gamut of extreme weather calamities over the years, from heavy windstorms and hailstorms to drought, and though the nonprofit hadn’t filed more than one minor claim as a result, Lynch knew that their carrier would see that as a negative.
But she didn’t expect their carrier to drop them.
Invest DSM is one of several community development groups whose policies have been canceled in the past two years, according to a survey of 12 community developers across the country. The survey of insurance costs was conducted by the Community Opportunity Alliance (formerly known as NACEDA)—a national nonprofit that supports community development organizations.
The Alliance had its own insurance crisis earlier this year when its insurance provider decided not to renew its policy because the phrase “community development” was found on its website. While the provider later rescinded the cancellation, claiming that it mistook the organization’s work for brick-and-mortar development, the Alliance decided to poll colleagues in the field to see whether they’ve experienced similar insurance trouble—and how pervasive it was.
[RELATED STORY: Soaring Property Insurance Rates Threaten Affordable Housing Development]
The responses were as grim as they feared: The respondents overwhelmingly reported rising property and casualty insurance rates over the previous two years—anywhere between 15 to 432 percent—compared to the expected 3 to 15 percent year-over-year increases respondents reported pre-2022. And several developers, like Invest DSM, reported dropped policies, either due to losses from natural disasters or, worse yet, due specifically to the services the developers provided.
“One thing that surprised me was that the problem isn’t limited to the affordability of insurance,” says Frank Woodruff, the Alliance’s executive director. “It’s about insurers exiting lines of business and markets altogether—and, in some cases, for very questionable reasons.”
Most carriers, like Invest DSM’s, cited the increase in natural disasters as the reason for canceling a policy, but some providers dropped policies because housing providers accepted Section 8 vouchers from tenants, or because development work was being done in high crime areas. In one instance, an organization’s policy was canceled because it ran a food bank. In fact, several community developers reported they were dropped specifically because of the work that they do.
“The most generous interpretation of that is that [insurers] don’t understand who they’re insuring,” says Woodruff.
As a result, the community developers surveyed said that they have had to cut costs elsewhere in their operations, from selling off properties to raising rents, laying off staff, and eliminating programming. Almost all of them said that they’ve had to reconsider future projects because of rising insurance premiums, throwing their futures into question.
Affordable housing developers are especially hard hit, as they weather the same forces plaguing the regular housing market but without the ability to pass on costs to their tenants, which then forces them to scale back their services.
“The immediate adjustments are a shift in what services [we] can offer to residents,” Trell Anderson, executive director of Northwest Housing Alternatives (NHA)—an affordable housing developer in Portland, Oregon—told Shelterforce by email.
Over the past four years, said Anderson, NHA’s property insurance rates have risen over 500 percent across its portfolio of 2,800 units of affordable rental housing, forcing the organization to shrink its programming.
“The more that is required to pay for insurance,” Anderson said, “the less we have in available funding to pay for supportive services that help stabilize tenancy, which is the goal of affordable housing.”
“If left unchecked,” read a Fairview Housing Partners paper on insurance premium inflation in affordable housing, “inevitably cash-flow at properties will decrease and property reserves are depleted, leaving owners of affordable apartments with only undesirable options: defer maintenance, cut back on services, opt-out from affordability as use restrictions expire and/or default on their debt.”
One poll by the Nonprofits Insurance Alliance found that for brokers specializing in the nonprofit space, after foster family agencies, nonprofits providing affordable housing and low-income housing were the most difficult to insure. Developers like Northwest Housing Associates, then, are left to work with dwindling options.
The most generous interpretation of that is that [insurers] don’t understand who they’re insuring.”
Frank Woodruff
“Forecasting our organization’s future,” said Anderson, “when rent collection under regulatory agreements no longer pays for the expenses to staff and operate a building, we may have to dispose of properties, which weakens our community impact.”
NHA is currently undergoing an annual policy renewal process, and Anderson said the organization is bracing for another increase, with still-higher deductibles in 2025.
“We are cast about with no life raft in the high seas of the volatile insurance industry,” he said.
After Invest DSM’s policy was canceled, the organization sought coverage in the specialty insurance market, resulting in its casualty and property insurance rates skyrocketing to 432 percent when they had been from 12 to 15 percent. Even then, says Lynch, they were lucky. “Honestly, our broker really struggled to even find a carrier that was willing to take us on.”
But its new policy is replete with limits and exclusions on coverage, says Lynch, due to the vacant properties in the organization’s project portfolio. The organization currently has about 60 properties in various stages of redevelopment, from properties under construction to those waiting for demolition—some phases of which open them up to more risk.
“They view [those unoccupied properties] as a riskier endeavor, and regular carriers are not as willing to take it on as they were in previous years,” she says. “We certainly understand that. At the same time, that’s exactly why we pay for insurance: to help be a backstop for those types of risky situations.”
Invest DSM had enough in the budget to eat the cost of the increase without affecting its programming, but Lynch fears their policy could very well be canceled again. If the market continues on its current trajectory, Lynch says, she sees community development organizations like her own reconsidering whether property insurance is even worth the investment anymore, especially as climate disasters are only expected to increase everywhere.
“It feels like it’s going to make property ownership just that much more tenuous for everyone, and force people into those risky decisions again,” says Lynch. “‘Is it worth my while to have insurance when they’re not going to back me up when I need them?’”
Many of her colleagues in the field may soon decide whether to self-insure instead, as commercial insurance pushes them deeper into hardship, if not existential threat.
And it’s not just those working in communities along the coasts, says Woodruff.
“It’s often framed as a problem that is coastal or in hurricane areas,” he says. “It’s much more pervasive than that.”
Based on the Alliance’s survey data, Woodruff says, commercial insurers don’t seem to understand how to write risk for nonprofits, who often work in inherently high-risk communities, be they high-crime, low-income neighborhoods, or in communities prone to climate disaster. But one way to address the issue is to get some clarity over insurers’ approach to their nonprofit clients to begin with.
“I think making data more transparent about how insurers are calculating risk could help,” he says. “[It] will encourage innovation and at least allow the public to know how insurers could calculate risk differently. That’s a long-term solution, but I think it’s a necessary one.”
He also pointed to state insurance regulators addressing their niche of the market, as well as federal legislation like The Nonprofit Property Protection Act, which would enable certain risk retention groups to appropriately insure nonprofits with specific coverage.
“I think that’s part of a solution,” says Woodruff. “It isn’t going to change the world overnight, but it’s a step.”
Perhaps market volatility will level out before then, he says. Otherwise, “it’s not looking good.”
“We’re taking from the dollars that could otherwise be going out into the community in order to pay for this,” says Lynch. “Something has to give. Otherwise, we’re going to create greater problems for our communities down the road.”
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