The Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), has updated its policies for wind and “named storm” insurance coverage for multifamily properties financed with an FHA-insured mortgage.
In announcing the move, federal officials noted 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.”
The updates seek to provide lenders and property owners greater flexibility in obtaining and negotiating property insurance premiums from insurance carriers so developments can obtain the coverage they need without unduly jeopardizing their financial stability.
Effective immediately, FHA is increasing the maximum permissible wind or named storm deductible to the greater of $50,000 or 5% of the insurable value per location, up to a maximum amount of $475,000 per occurrence, announced HUD.
Previous Multifamily Accelerated Processing 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.
“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, HUD 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.”
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, explained HUD.
