The Department of Housing and Urban Development (HUD) revised its policies for wind and named storm insurance coverage required for multifamily properties financed with an FHA-insured mortgage. The move comes after pressure from LeadingAge and other partners to address rising insurance costs for affordable housing providers.

Effective immediately, FHA significantly increased the deductible cap on permissible insurance deductible for wind and named storm damage. The new increased the maximum deductible is now the greater of $50,000 or 5% of the insurable value per location, up to a maximum amount of $475,000 per occurrence. Previous MAP Guide policy prohibited this deductible from exceeding the greater of $50,000 or 1% of the insurable value for any insured building up to a maximum amount of $250,000.

The update is designed to provide lenders and property owners with greater flexibility in negotiating property insurance without jeopardizing financial stability. HUD stated that insurance costs for multifamily properties have risen significantly in recent years, largely due to the greater frequency and severity of storms resulting from climate change.

According to HUD’s press release, heavy rainfall, high winds, and storm surges associated with intense storms have the potential to cause significant damage to property, more so than average seasonal storms that may be historically typical for any given geographical area. Because these stronger storms have the potential to cause significant damage to property, property insurance providers generally define them as “named storms” and assess an increased named storm deductible as a condition of providing coverage in the event of a catastrophic loss.

“Raising the deductible amount provides important flexibility for lenders and property owners to obtain and maintain appropriate property insurance that covers their properties in the event of catastrophic weather damage, while maintaining appropriate safeguards to ensure that properties are adequately insured,” said Ethan Handelman, Deputy Assistant Secretary for Multifamily Housing. “Not only is it required by FHA, but being able to secure property insurance coverage is critical to developing new and maintaining existing affordable and market-rate multifamily rental housing.”

LeadingAge supports the increase and will continue to work with HUD on addressing insurance costs.