Protecting tribal LIHTC assets with proper insurance coverage

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As a condition of closing with an equity investor through the Low Income Housing Tax Credit (LIHTC) program, tribal housing authorities put insurance policies into place to protect housing assets. Insurance isn’t just important for the investor; it is also critical for the housing authority or tribe as the general partner of the ownership entity.

The proper insurance will protect housing assets from losses caused by falling objects, fire, weather and other occurrences. At Travois we help clients to balance the minimum insurance requirements of the investor and the housing authority or tribe with amounts of coverage necessary to adequately protect against the risk of a total loss of a housing unit (or apartment complex).

Often, AMERIND Risk, a multi-tribal federal corporation, provides this coverage for tribal tax credit projects. AMERIND has low cost products for both individual properties and multiple houses or properties, according to Colandra Willie, commercial & personal lines underwriter for AMERIND.

For new construction projects, calculating the necessary replacement value coverage is typically a function of the contracted amounts to build each unit. For rehabilitation projects, the replacement value amount is often greater than the amount of work being completed to rehabilitate the project.

As part of ongoing management functions, it is important that tribal housing authorities review and update replacement value coverage amounts annually to stay in line with increasing construction costs. This is especially advised for projects that have been in service for a number of years or are located in areas of high economic growth and/or volatile construction prices.

Colandra informed us that over the last 10 years, countrywide construction costs have averaged a 3.5 percent increase per year. We strongly suggest that tribal housing authorities take another look at their insurance coverage amounts and determine if their coverage is adequate.

AMERIND recommends the following when evaluating insurance coverage for LIHTC/NAHASDA units:

  1. The property should be insured for full limits. Often insurance policies will have co-insurance provisions that must be met and result in claim payments that are less than full value on partial and full losses.
  2. Equity investors should be listed as a loss payee, additional insured and certificate holders on the policy. This is similar to a mortgage holder.
  3. To determine the insurance replacement value of the property, tribal housing authorities can use Xactware, the replacement valuation estimator used by most claims departments. For $8.95, you can input data and get an accurate valuation.

AMERIND underwriting staff can provide assistance in determining adequate values. Contact AMERIND at 1-800-352-3496 for more information.