A new report questions the accuracy of using crime scores in insurance underwriting for affordable housing properties.
Published by the Center for Real Estate Excellence in the Pamplin College of Business at Virginia Tech, the study outlines significant concerns about the use of crime scores, which are often used by insurance companies to help asses and price general liability and property risk.It’s an important issue because high crime score could preclude a property owner from obtaining insurance or result in higher insurance costs.
Drawing on different research, the report identifies 10 limitations of crime scores that insurance firms should take into account. The limitations do not render crime scores valueless as an analytical tool, “but they do speak to the importance of using them cautiously in the underwriting process if accurately assessing general liability risk is the ultimate goal,” says the paper.
Scott Insurance, a leader in property and casualty insurance, funded the research with funding support from the Stewards of Affordable Housing for the Future (SAHF), a nonprofit collaborative of affordable housing providers, and Virginia Community Capital, a nonprofit Community Development Financial Institution and a for-profit bank who provides investment capital to underserved markets.
“With rapidly increasing insurance rates, we were eager to understand this practice as one of many contributing factors to rising costs, particularly as it effects properties and communities undergoing comprehensive reinvestment,” says Andrea Ponsor, SAHF president and CEO.This report reveals a significant flaw in the way the insurance industry underwrites the affordable housing industry, according to Nathan Kerr, vice president at Scott Insurance.
“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,” he says. “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.”