How Affordable Housing Developers Are Getting Insurance Waivers from Lenders

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Affordable housing owners and developers are shaving thousands of dollars off their insurance costs by winning waivers and otherwise negotiating less-stringent insurance requirements from their lenders.

It’s not easy, and they’re not doing it alone, but the dollars saved can be substantial.

Insurance, as we all know, has been costing more in light of the intensifying frequency and severity of natural disasters as well as inflation, which has driven up building and labor costs. Properties in coastal or wildfire-prone zones are even more expensive to insure, while older properties face yet greater challenges. The way insurers consider crime risk also has meant steep insurance hikes for some affordable housing projects.

To protect their loans, lenders will try to specify minimum insurance coverage amounts and limits based on the value of the property and the perceived level of risk.

They’ll want, for example, a full replacement value based on their appraisal. It’s great to have high replacement cost limits, but often, what lenders require is excessive and may be unduly inflated. Lenders also will want low deductibles, full limits on terrorism insurance, and high ordinance and law – even if the property is brand-new.

Affordable housing owners and developers are shaving thousands of dollars off their insurance costs by winning waivers from their lenders.

So, are the lenders right to expect so much? Or can they be persuaded to adjust their thinking and stop simply checking boxes?

The good news is that with the right assurances, some lenders may, in fact, be willing to waive some of their more stringent insurance requirements.

Solutions exist that provide owners and developers the peace the mind they need while satisfying lenders. In fact, there may be lines of coverage to consider that a lender doesn’t require or even know exist.

Simply asking for waivers, by the way, doesn’t work.

Instead, a developer or owner would need to provide a detailed waiver request, supported by data, one that is prepared by an insurance brokerage that knows the ins and outs of the affordable housing world.

It also helps to have a broker with long-standing relationships with lenders. Banking, like the insurance business, is a relationship business. In other words, it’s not enough to find an insurance brokerage that merely sells real estate coverage. You need a team that knows how to handle the delicate negotiations over insurance requirements with lenders and has trusting relationships with the right carriers.

The growing awareness of the affordable housing crisis in the U.S. could lead to legislative efforts that could ease some of the pain. We’re heard of initiatives like government-backed insurance programs for high-risk zones or incentives for insurers backing affordable housing projects. But no one should count on these in any immediate sense.

The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.

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