Insurance ’crime scores’ pose added risk to US affordable housing

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'Crime score' ratings threaten affordable housing

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Ratings too broad for individual properties, critics say

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New form of 'legal redlining,' says one official

By Carey L. Biron

WASHINGTON, - A critical shortage of U.S. affordable housing may become even more so as developers face fast-rising insurance premiums, driven in part by a mysterious third-party "crime score" that some owners say could put them out of business. Nearly every community in the country is struggling with a lack of affordable housing options as prices exploded in the last half-decade, pushing the issue to the center of the presidential election. Vice President Kamala Harris and former president Donald Trump have both pledged action to rein in the soaring cost of housing, sparked by a longstanding scarcity of new homes that has been made worse in recent years by inflation and labor shortages.

"Skyrocketing" insurance rates are also driving up rents across the country, the National Multifamily Housing Council industry group warned last year, with average property insurance rates rising by 26% and liability coverage by 15% over a year.

"We're pretty much not able to operate a single property in the green – not one," said Avi Wolf, whose company owns and develops affordable housing and other real estate in the Atlanta area.

Over the past year and a half, Wolf's operations have seen a "massive insurance increase" – rising from about $50 a year per apartment a decade ago to $1,500 for some today, the Thomson Reuters Foundation.

One form of coverage in particular, called "assault and battery" that protects owners from lawsuits if an assault takes place on their property, has become essentially impossible to get, Wolf said.

The few insurers still available to Wolf in Georgia have adopted the use of "crime scores," rating properties based on the number of crimes that have taken place nearby, but the details used for the measure are opaque.

Wolf now worries about a "spiral" of disinvestment in the Atlanta market, if more developers are forced to sell their properties due to prohibitive insurance rates.

Lorraine Cochran-Johnson, CEO-elect for DeKalb County which includes part of Atlanta, likens the crime scores to "legal redlining" – a policy used by banks in the past that deemed it too risky to give housing loans to people living in mainly Black or minority areas.

"It's problematic because these areas are always the areas that are in need of the greatest revitalization," she said in an interview.

"This requires legal attention," Cochran-Johnson said. "I take no issue with charging higher premiums, but you cannot simply deny coverage."

'BLACK BOX'

Crime scores are one of several tools that commercial insurers use to analyze the risk of loss, said Eric Goldberg, a department vice president at the American Property Casualty Insurance Association, an industry group.

"For example, if a tenant or guest in a building gets attacked on the building premises, it could result in a lawsuit. Additionally, if a property is in a high crime area, there may be an increased risk of vandalism, arson, theft and other perils that could impact the insurability of the property."

Insurers may take into consideration efforts an owner takes to mitigate risks, such as installing security systems, Goldberg said in an email. More insurance companies are relying on crime scores to hedge against costly lawsuits that target commercial properties over criminal activity, said Jeffrey Robert, an assistant real estate professor at Virginia Tech. The issue has become especially problematic for affordable housing, as these units tend to be located in higher-crime areas, he said.

Created by third-party companies using proprietary algorithms, crime scores use census data and a variety of crime reports, but often lack the granular information for a specific property, Robert wrote in a 2020 report.

If an assault that takes place blocks away - or in rural areas, even miles away - from a housing complex, it could still drive up its insurance premium – or result in being denied coverage all together. "If you happen to live in a high-crime-score area, you can't negotiate," Robert said. Nathan Kerr, a vice president with the brokerage Scott Insurance which backed Robert's research, "started hearing this pushback" around crime scores as insurance prices rose.

"These costs are really oppressive right now," said Kerr, who heads Scott's affordable housing group and negotiates insurance coverage on behalf of clients. "Property and general liability premiums are really crushing our industry right now."

The methodology for creating crime scores is a "black box," he said.

CoreLogic, a company that offers crime risk analytics, collects raw data from more than 18,000 law enforcement agencies "and attributes the reported crimes to local communities after analysis performed using a proprietary data science methodology," said Robin Wachner, senior director of corporate communications.

The company uses the most recent data available and does not use any personal characteristics or statistics on neighborhood income or demographics, Wachner said in an email.

'EXISTENTIAL RISK'

Crime scores are just part of the insurance problems facing the affordable housing industry, said Thom Amdur, executive director of Fairview Housing Partners, a non-profit based in New York that has published on the issue. Natural disasters and an increase in litigation have pushed up expenses for insurers, which they pass on to housing operators, he said.

"If this crisis continues … it will put some owners in a bind, where their only option is to sell the property," Amdur said.

That could lead to new owners or a foreclosure that removes a property's affordability restrictions – what Amdur called "the big existential risk."

In the past year, public authorities have begun to recognize the need for intervention, he said.

The federal Department of Housing and Urban Development is "deeply concerned" about the effect of property insurance rises and is "looking for new ways to address this growing challenge," a spokesperson said in an email.

In Atlanta, Wolf is just hoping that a solution comes quickly enough for his properties and their residents.

"It's only a matter of time until something pushes me out. I'm on borrowed time now."

This article was generated from an automated news agency feed without modifications to text.