3 Progressive Housing Initiatives That Could Prompt a Greater Need for E&S Market Solutions

By: | March 9, 2023

Erich Bublitz is the Senior Vice President of AmTrust’s Excess and Surplus (E&S) division. He leads the AmTrust E&S team in supporting a unified national underwriting appetite focusing on specific industry segments while continuing AmTrust’s dedicated wholesale distribution strategy. AmTrust E&S offers clients a wide range of specialty insurance products through its three primary underwriting platforms: Specialty Primary and Supported Excess, Unsupported Excess, and Contract Binding.

There will always be new emerging risks for the E&S market. In the past year, the soaring costs of nuclear verdicts — with their third-party litigation funding, social inflation and consumer inflation — presented many challenges for the traditional and non-traditional insurance markets. Because these and other issues (such as cyber threats or climate change) keep evolving, there is increased demand for specialized coverage from E&S markets.

As we look ahead, E&S insurers are keeping an eye on potential local legislation and issues that could impact the types of services the E&S market can provide in the future. Below are three issues we are watching:

Amending New York City’s Fair Chance for Housing Act

The New York City Council held a hearing on December 8, 2022, to discuss amending the city’s Fair Chance for Housing Act. The amended act would make it illegal for landlords and realtors to ask about criminal records or perform a criminal background check when considering a new tenant.

Currently, landlords can deny the application of a potential tenant with a criminal record. The bill would only affect local law and would not prohibit checks against the sexual offender registry or credit checks. There could still be final adjustments to the bill before it is brought up for a vote by New York City Council.

Supporters of the legislation say it would give all New Yorkers a chance at a safe and stable home. However, there has been opposition from public safety, landlord and conservative organizations to updating the act. Similarly, there is proposed legislation in New York state that would ban criminal background checks specifically for living in NYCHA buildings sitting on Governor Kathy Hochul’s desk.

The Department of Housing and Urban Development discourages criminal background checks as criminal history is not a good predictor of housing success. The 2015 NYC Human Rights Law bans most employers from factoring in a prospective employee’s criminal background during hiring.

Los Angeles Residents to Vote to Require Hotels to Offer Vacant Rooms to Homeless

In March 2024, Los Angeles residents will vote on a new law requiring hotels to offer vacant rooms to homeless individuals with a voucher from the city. If the ordinance is passed, every hotel (large and small) will be required to report vacancy percentages and welcome homeless guests who have a voucher with the city. The hotels would be paid the market rate for the rooms.

Today, on an average night in Los Angeles County, more than 60,000 homeless people are on the streets. At the same time, there could be more than 24,000 vacant hotel rooms.

The idea for the legislation came from Project Roomkey, a pandemic-era program funded by the federal government that sheltered more than 10,000 homeless people in more than 30 hotels that volunteered to participate and will be shutting down.

Hotel owners fear that “homeless hotels” will burden hotels unfairly and deter visitors from staying in Los Angeles. The safety of other guests and staff was also an issue cited by hotel managers and industry representatives against the ordinance.

The law could also have implications for developers, who would have to replace any housing knocked down to make way for new hotels.

Also, if housing units are being demolished or converted for a new hotel, the hotel would have to replace them with an equivalent number of affordable housing units.

New Asylum Shelters in New York City

During the second half of 2022, New York City saw a surge of over 11,000 migrants arriving in the city, straining its already crowded shelters. In response, the city will open two new tent “Humanitarian Emergency Response and Relief Centers” to house the arrivals who can’t find other places to stay. The centers would accommodate the new arrivals for 24 to 96 hours.

The tent centers would be in addition to the 23 temporary emergency shelters in hotels and other buildings that the city has already set up to house the thousands of asylum seekers that have arrived by bus from southern border states.

Mayor Eric Adams is also considering utilizing cruise ships for sheltering purposes. However, homeless advocates are against the idea because the immigrants would be further away from commerce, education sources and transportation centers, causing further alienation.

New York City and New York State are subject to the Right to Shelter mandate, which states that anyone who arrives at one of the city’s five shelter intake centers is guaranteed a right to shelter. Typically, people are temporarily placed in the shelter for up to 10 days as workers assess whether they have somewhere else to stay.

Impact on the E&S Market

In each of the above situations, traditional insurance could be limited, forcing property owners to look for other alternatives. For example, hotel owners are worried that their ability to purchase and maintain general liability insurance will be impacted or will lead to higher premiums.

There is a worry that insurance carriers could pull traditional coverages for hotel owners in major cities due to the additional risks of providing housing for homeless guests. Property owners could end up being better served by purchasing insurance in the E&S market. The E&S market creates the ability to properly balance coverage and price to meet an insured’s specific needs — or, if the risks become too high-hazard to be supported by the standard market filings, it may be the only option to obtain coverage at all.

One of the strengths of E&S insurers is the ability to react quickly to change and to provide customized and innovative coverage to meet an insured’s specific needs, which are often harder to insure in a traditional insurance market.

Due to the ever-evolving situations mentioned above, the E&S market has continuously developed new products and services to meet the needs of its customers. As traditional insurance companies remove themselves from potentially riskier situations, the wholesale and E&S markets are jumping in to find innovative insurance solutions for our customers. &

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