The FWD: Should High Crime Always Mean High Premiums?

What do a neighborhood’s crime scores have to do with insurance premiums for multifamily housing? Perhaps too much. 

A recent report by the Virginia Tech Center for Real Estate Excellence looked into why insurance underwriting that uses crime statistics as part of its pricing methodology may be unfairly pricing multifamily housing insurance. An innovative partnership between Scott Insurance, Stewards of Affordable Housing for the Future and Virginia Community Capital (VCC), funded this research.

“An accurate assessment of the communities and the housing development projects we work with is very important to our underwriting process,” says Wayne Waldrop, VCC President and chief lending officer. “We believe better information and data will help the industry make more informed decisions for our housing clients, ultimately saving them money and resources.”  

Many insurance carriers use third-party crime scores to evaluate exposure to risk when underwriting general liability insurance policies. A high crime score may result in higher premium costs and could potentially even preclude the owner of a multifamily housing complex from obtaining insurance coverage. 

These underwriting practices are especially impactful to the affordable housing community, since affordable housing is often located in areas with higher crime scores when compared with traditional multifamily properties. Thus, affordable housing providers are likely to experience difficulty obtaining insurance coverage that is accurately priced.

The practice of employing crime scores to assess property-specific risk may negatively impact affordable housing operators. The report highlights ten specific ways in which crime statistics may be faulty data for insurance underwriters to rely on. The report recommends that affordable housing operators use this report and its recommendations to begin a discussion with their insurance broker.

“This industry already faces many limitations and barriers to overcome with the insurance community—limited supply of insurers and higher rates than necessary due to the traditional negative stereotypes with affordable housing,” says Nathan Kerr, vice president and affordable housing practice lead at Scott Insurance. “Our hope is that this data will minimize the weight of crime scores in underwriting and, ultimately, help owners and developers gain access to better, more accurately priced coverage options in the future.”