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Landlords call for investigation into soaring insurance costs

Housing providers in the Bronx report skyrocketing insurance rates that are putting many units of affordable housing at risk. 

The Community Housing Improvement Program (CHIP) is concerned that this could indicate a return to redlining practices in certain industries, and is calling for state officials to investigate the cause of these spikes. 

CHIP is also calling for all proceeds from fines connected to the  behavior to be used to provide rent relief to low-income renters and housing providers.

JAY MARTIN

“In the middle of the COVID-19 pandemic, it is unconscionable that insurance companies are gouging building owners who need every dollar to make sure that they can provide safe, clean homes to New Yorkers,” said Jay Martin, executive director of CHIP.

“The fact that these costs are rising so dramatically in the Bronx, a borough that has been disproportionately harmed by COVID, is particularly alarming. 

The Rent Guidelines Board’s 2020 Income and Expense Study listed the estimated average insurance costs for the Bronx to be $720 per unit a year, based on 2018 data.  But CHIP members are reporting huge spikes in the past two years. 

In one case, total insurance costs for a small owner (less than 150 units) more than doubled from $639 per unit to more than $1300 per unit in 2020. A larger owner (more than 500 units) also reported that their per unit costs jumped from $648 to more than $1000 in 2020.

Both owners report that they had zero loss runs for the past five years, which means they did not file any claims with their insurance companies that would typically be associated with the increases. 

CHIP represents the owners and operators of more than 400,000 units of rent-regulated housing in New York City.  Conversations with roughly a dozen of its members in the Bronx revealed “troubling evidence” that insurance providers may be refusing to write policies, or dramatically increasing the cost of policies they offer. 

Insurance brokers interviewed by CHIP suggested that providers may be engaging in redlining by refusing to write policies for apartment buildings in the Bronx.

“They reported to us that as many as a dozen insurance providers have simply refused to offer a quote for a building. Others have increased prices so dramatically that they are unaffordable for a rent-stabilized building owner,” said CHIP in a statement.

“Refusing to write policies for a specific area of the city is unacceptable. When that area has one of the highest concentrations of people of color, it is discriminatory,” said Martin. “If redlining is happening, the State Legislature must act quickly to stop it and punish the people behind it.” 

Most building owners are required by their mortgage agreement to purchase a minimum level of insurance coverage, which typically includes general liability coverage, property damage coverage, and umbrella coverage for high-dollar claims.  This locks the housing provider into a situation where they cannot avoid paying the higher costs for insurance.

The Bronx contains the highest concentration of rent-stabilized units and, according to CHIP, there is no way to offset this and other rising costs with rent increases, because the annual rent increases adopted by the Rent Guidelines Board have been averaging one percent over the last three years. 

Even if the RGB allowed for lower rent increases, some CHIP members in the Bronx report that as many as 40 percent of their residential tenants have not been able to pay rent because of the COVID-19 emergency, further exacerbating the current crisis. 

This confluence of events has plunged some buildings into severe distress, where monthly operating incomes are tens of thousands of dollars behind operating costs, according to CHIP.

The buildings in the most severe distress are operated by small property owners, who own less than 150 units.  For them, the significant loss in operating income coupled with these rising costs is unsustainable, and likely will force them to sell their building to a large corporate entity at a discounted price, says CHIP.

“Immediate action providing relief on insurance costs could prevent this pending fire sale,” said the group in a statement.

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