Affordable Housing Providers Hardest-Hit in Insurance Market for Nonprofits

Adding to significant challenges including labor shortages and reduced funding, nonprofit organizations are experiencing increasing difficulty in securing adequate property and casualty insurance. Premiums are increasing, deductibles are escalating, and the number of carriers willing to engage with nonprofits continues to shrink.  

These challenges underscore the importance of partnering with an experienced insurance broker who specializes in serving nonprofit organizations.  

Affordable housing challenges 

Among the most vulnerable and severely affected nonprofit class is affordable housing, especially for Property Insurance. 

“As prices rise and coverage becomes more limited,” reported Enterprise Community Partners, “affordable housing developers are being forced to consider making difficult and potentially harmful decisions, such as postponing investments in improvements or updates to the building, reducing or eliminating on-site services, or laying off resident services or maintenance staff that are essential to the residents they serve.” 

An NDP Analytics survey of affordable housing providers revealed that more than 93% “are or plan on taking action to manage (insurance) costs.” Actions under consideration include increasing deductibles, cutting operational expenses and increasing rent.  

Unlike for-profit entities, nonprofits face constraints when attempting to raise rents to offset higher insurance premiums. While private housing might experience a $500 increase per month at renewal, affordable housing providers typically implement smaller adjustments, such as an additional $5 per month in rent.  

Legislative standstill  

The Nonprofit Property Protection Act (NPPA) has emerged as a potential solution to address the dire situation facing U.S. nonprofits struggling to obtain comprehensive insurance coverage. As nonprofit organizations face dwindling options and exorbitant premiums in the insurance market, the NPPA offers a ray of hope by allowing risk retention groups (RRGs) to provide much-needed Property Insurance, in addition to the liability coverage currently offered.  

However, the proposal has encountered opposition from the National Association of Insurance Commissioners (NAIC), which cites concerns about insolvency risks and the impact on state-run guaranty funds.  

Despite bipartisan support and documented evidence of the crisis, the regulatory standoff leaves nonprofits in a precarious position, jeopardizing their operations and services due to the lack of affordable insurance options.  

Market outlook on insurance for nonprofits 

Nonprofit insurance buyers should expect to experience a convergence of increased premiums, deductibles and valuations, especially with Commercial Automobile and Property Insurance. Here’s what Alera Group reported in our 2024 Property and Casualty Market Outlook regarding factors influencing the insurance market for nonprofits: 

• “The Property (Insurance) market is troublesome for all buyers, especially nonprofits. Climatic events and inflation continue to escalate loss costs for insurance companies. Insurers are highly selective in how they use their capacity. Most will not consider older properties or buildings that have not been fully updated. Nonprofits in catastrophe-prone areas may find it difficult to purchase the insurance they need at a price they can accept. 
• “Nonprofits will have fewer choices. A shrinking number of carriers want to insure this sector. Some are withdrawing from the market entirely; others are leaving certain states or reducing their product offerings. Nonprofits in affordable housing and those that provide youth and mental health services are among the more difficult risks to place. 
• “Underwriting requirements will be restrictive. Insurers are tightening the parameters for the accounts they will consider. Key considerations are claim history, services provided, and the construction and condition of properties owned. Few accounts will renew ‘as is.’ Insurers will carefully evaluate clients — even those with longstanding relationships. 
• “Abuse-related claims are still problematic. Despite the controls many nonprofits have implemented, claim costs continue to increase. Nonprofits that serve youth and other vulnerable populations face the greatest challenges in securing coverage. 
• “Labor shortages increase risk. According to a 2023 National Council of Nonprofits survey, 76% of participants reported job vacancies. Unfilled jobs tended to be the positions that interact with the public the most. Almost 3 out of 4 respondents reported vacancies in their program and service delivery positions, and 2 out of 5 reported vacant entry-level positions. As nonprofits put more pressure on existing workers and are forced to rely on less-experienced employees, the risks of errors, accidents and compromised service delivery will increase.” 

Facing heightened underwriting scrutiny 

With stringent underwriting, particularly within the affordable housing sector, accurate property valuations are critical to ensure that replacement cost coverage aligns with current construction rebuilding costs. It’s essential to present underwriters with credible data, methodology and rationale to validate calculations.  

Buildings more than 30 years old may fall outside underwriting guidelines as carriers restrict coverage.  

What you can do  

Partnering with a savvy broker experienced in the nonprofit sector is paramount for securing comprehensive coverage at the best pricing available. Search for a broker who demonstrates:  

• Expertise in the nonprofit sector. Select a broker who understands the unique needs and challenges of nonprofit organizations and stays informed on industry trends.  
• Strong carrier relationships. A broker with established relationships with leading nonprofit insurance carriers will know the viable options for negotiating favorable terms.  
• Proactive risk management. Choose a partner who understands industry best practices and will help implement risk management policies and procedures. 
• Transparent communication. Effective communication is crucial. Find a broker who provides transparency, empathy and clarity, and is willing to navigate challenging market conditions.  
• Educational guidance. A broker who educates and advises you on your insurance program empowers you to make informed decisions. Examples of actions an experienced, insightful broker may take include providing renewal budget estimates or ensuring adequate coverage for allegations of sexual abuse and molestation.  
• Negotiation skills. A talented negotiator can maximize the value of your insurance program, placing emphasis on risk management elements that could positively influence your insurance program, such as installed water sensors to mitigate property exposure or exercising rigorous driver hiring practices to manage liability risk.  

The right broker will craft a compelling narrative for underwriters that highlights best practices, loss-prevention measures and operational policies tailored to your organization.  

By staying informed and forging a strong partnership with a knowledgeable broker, nonprofits can better position themselves to confront insurance market challenges and continue their invaluable contributions to the communities they serve.  

CONTACT AN ALERA GROUP NONPROFIT SPECIALIST   

About the author  

Rhonda Ross 
Sales Executive 
Propel Insurance, an Alera Group Company 

Rhonda Ross has two decades of extensive expertise in insurance and risk management, with a focus on tailoring property and casualty programs for the unique needs of nonprofit and public sector clients. Rhonda collaborates with clients to understand their exposures and operations, guiding them through strategic decision-making processes to prioritize coverage needs.  

Contact information: 

• rhonda.ross@propelinsurance.com
• Connect with Rhonda on LinkedIn