New York Hopes Captives Can Lower Affordable Housing Insurance Costs

New York State is providing financial assistance to a captive insurer and taking other steps to advance this form of self-insurance as part of an effort to lower insurance costs for operators of affordable housing.

The state has made a $2 million loan to Milford Street Association, an organization with an insurance captive that is owned and operated by members of the state’s affordable housing industry.

The loan is from Empire State Development (ESD) to the Milford Street Association Insurance Co.

Milford Street plans to use the $2 million to cover a portion of the initial capital contribution cost for membership, thereby hoping to increase membership in the captive. Increasing membership should enable the captive to be more affordable to its members.

“This investment in Milford Street will continue to advance our housing agenda, leading to more affordable units built for tenants. We need to build in New York, and we’re going to support the partnerships that will tackle these insurance costs,” Gov. Kathy Hochul said in announcing the loan.

Hochul said the state has also advanced $5 million for a pilot program to help non-profit housing providers reduce costs by using insurance captives. The Urban Homesteading Assistance Board and Housing Partnership Network have been tasked with working with non-profit affordable housing providers across the state to assess the risk profile of their properties and assist them in using insurance captives.

NYC Mayor Eyes Insurance Program for Affordable Housing

John A. Crotty, Milford Street president and founding member, said the state’s support is “critical” to not only the success of Milford Street Captive Insurance Co. but to the continued health and existence of New York’s affordable housing market.

“Rising insurance premiums are putting intense pressure on the thin margins of affordable housing operators, resulting in fewer projects being underwritten, defraying necessary maintenance and eventually forcing some buildings into bankruptcy,” Crotty said.

Milford is owned by its participants and reinsures policies purchased by New York affordable rental buildings that have a regulatory agreement limiting rents and receive public financing. It currently insures about 3,000 apartments. The company says it has been able to lower liability insurance premiums for affordable housing by “changing the focus from profit to stability, simplifying overhead and operations and instituting tailor-made risk management controls.”

The Milford Street captive insurer is domiciled in Vermont and is regulated by the Vermont Department of Financial Regulation. It was licensed in December 2023.

The loan follows New York City Mayor Zohran Kwame Mamdani’s recent announcement that he is seeking to create a new city-backed insurance program to lower the cost of property and liability insurance for the affordable housing sector. By 2027, Mamdani hopes to lower the cost of insurance policies for 20,000 homes and, by 2030, for as many as 100,000 homes.

The mayor said the city would hire actuaries to design the program in partnership with the private sector. While he has not committed to any particular type of program, Mamdani has in the past described Milford Street as “exactly the kind of innovation New York needs,” according to Crotty.

New York City affordable housing liability insurance premiums increased at an annual rate of 21% between 2019 and 2023, according to a March 2024 report by the New York Housing Conference (NYHC).

The NYHC report said rising costs discourage the development of new affordable housing, place pressure on affordable rents and carrying charges, and force current operators to defer necessary maintenance, adversely impacting housing quality.

In testimony before a state legislative hearing on insurance last November, Milford Street’s Cotty said the association was created to confront what has become the “single greatest operational threat to affordable housing: insurance costs driven by an unmanageable and increasingly aggressive liability environment.”

He said a few years ago, insurance for an affordable building cost less than $500 per unit, whereas he said today it regularly exceeds $1,500 per unit. He said premiums have risen by an average of 21% each year for the last five years. “This trajectory is not sustainable,” he told lawmakers.

He blamed the state’s “overextended litigation system” for siphoning capital that affordable housing owners need for repairs and improvements.

Crotty maintains that marginal claims are often settled because defending them is too expensive, further driving up costs.

“Without intervention, buildings will continue to fail—not from mismanagement, but because operating budgets are overwhelmed by litigation costs,” he told lawmakers. “If affordable housing is a priority, we must confront this issue directly and with full clarity,” her told lawmakers.