December 19, 2024

OLYMPIA, Wash. — A report submitted to the Washington State Legislature on Thursday details the state of the insurance market for housing providers receiving funding from the state’s Housing Trust Fund program and offers 12 potential policy options for improving their insurance costs.

Washington state Insurance Commissioner Mike Kreidler’s office (OIC) worked with Davies Actuarial and Alvarez & Marsal Financial Services on the report, which was requested by the Legislature in the 2024 session.

The report covers insurance affordability and availability for housing providers receiving Housing Trust Fund resources and serving extremely low-income households.

“The lack of affordable housing is one of the most critical issues facing our state today,” Kreidler said. “The options in this report mark an important first step in addressing one of the barriers those housing providers face.”

The options focus on at least one of three categories:

• Reducing the total cost of risk, by improving the properties, increasing property inspections, or mitigating the behavioral risks.
• Increasing the availability of insurance by establishing a new insurance or reinsurance mechanism, capitalized with public funds.
• Subsidizing the cost of insurance, either directly or indirectly.

The report’s policy options are

• Create a public reinsurer to reinsure private carriers that write property and liability insurance policies for housing providers.
• Create a public insurer to cover the first layer of property and liability insurance policies for housing providers. 
• Reimburse housing providers for expenses in their deductible layer.
• Subsidize the cost to install water leak and fire detection and suppression systems.
• Give housing providers more control over which tenants they house, while adding protections for residents who require inpatient medical or mental health treatment.
• Provide renters insurance for individuals in affordable housing units.
• Increase the frequency and scope of building inspections and/or appraisals and highlight risk mitigation measures.
• Enhance building codes to mitigate property damage and personal injuries, and provide funding to help housing providers comply.
• Increase state funding for social programs that can be administered by or in partnership with housing providers.
• Subsidize the cost of insurance for housing providers.
• Create a standard of negligence for certified housing providers, so they can only be held liable for residents’ actions if they display gross negligence or bad faith.
• Combine multiple options.

Commercial insurance costs have increased over the last six years, the report notes, due to extreme weather and wildfire-related losses and a tight reinsurance market providing primary insurers with less protection. The housing providers described in the report have additional issues because their properties tend to be either older and lacking modern safety measures, or newer with an appraised value above $10 million — both of which are considered unattractive risks by insurance companies.

Insurance companies also see an increased risk associated with extremely low-income housing and its residents — namely due to higher incidences of insured losses resulting from residents’ behaviors when compared with other sectors of the affordable housing market.

The report cited data from insurance companies doing business with the applicable housing providers in the last five years, including policies in effect, cancellations and non-renewals, claims, and premiums.

The Legislature convenes for its 2025 session on January 13, 2025.