An affordable housing association in New York has taken their insurance needs into their own hands by forming the Milford Street Association Captive Insurance Company. Ned Holmes speaks to John Crotty, one of the captive’s organisers, and Dan George, president and CEO of captive manager AVID Solutions, to find out more
What was the motivation behind forming the Milford ACI?
John Crotty: Insurance premiums for affordable housing projects have increased, on average, 21 per cent a year for the past five years. This onerous rise in premiums represents an existential threat to our business and the production and preservation of affordable housing in New York.
What drew you to a captive as a risk management vehicle? How does it solve the coverage issue facing the New York affordable housing market?
Crotty: We did an exhaustive analysis of the claims history and premiums of our potential members. Our cohort, which includes approximately 500,000 units in New York State, all require a regulatory agreement and public financing.
The robust regulatory scheme that New York State affordable housing operates under mitigates risk and our claims are lower than most market-rate buildings. Despite this, our premiums rose precipitously, and we surmised that we could do better and the actuaries we hired agreed.
What are the targets of the captive? What impacts do you hope it will have on the New York affordable housing market?
Crotty: Our goal is simple — survival!
Affordable housing operates on extremely thin margins and rising insurance premiums are putting tremendous financial pressure on existing projects and choking off the pipeline of new housing. Milford ACI will keep existing projects afloat and lower underwriting costs so that more housing can be built.
Can you provide an overview of the coverages that the captive provides for the association? Are there any that are particularly unique?
Dan George: Milford ACI is established to provide commercial general liability coverage tailored for affordable housing projects within New York City. With per occurrence limits of US$1 million and minimum aggregate limits of US$2 million per location, the programme targets the liability insurance needs of affordable housing developers and managers.
The unique aspect of Milford ACI lies in its dedication to serving a specific, underserved segment — affordable housing in New York City — while offering stable and affordable premiums that address the particular risks of this sector, including tenant liabilities and regulatory compliance.
What risks or challenges has, or does, the captive face?
Crotty: Milford ACI is a start-up and while we believe in our model and are confident that we will be successful we, like every other start up, are new to the market. Additionally, there are a lot of powerful players in the market who have an interest in seeing us fail.
They can make their premiums more competitive to drive us from the market and if successful, they jack them back up again.
George: Milford ACI will face challenges associated with maintaining its anticipated loss ratios while balancing the affordability of premiums for its members.
As an association captive, it must carefully manage underwriting, claims, and member growth to ensure that the premium pool remains sufficient to cover expected losses, operating expenses, and surplus accumulation.
Additionally, regulatory shifts, economic volatility, and the unique liability exposures inherent to affordable housing in New York City represent ongoing risks for Milford ACI.
Why did you opt to domicile the captive in Vermont?
Crotty: Vermont insurance regulators are forward thinking and creative. We believed they would be receptive to our model and understand that our captive had tremendous social benefit and is good public policy.
George: Vermont's well-established regulatory framework and expertise in managing captives make it an ideal choice for domiciling Milford ACI.
The state’s supportive environment, combined with a regulatory approach that emphasises both compliance and flexibility, is beneficial for an initiative like Milford ACI, which seeks to balance financial stability with social responsibility.
Vermont’s infrastructure and deep captive experience offer the structure needed to support a specialised captive focused on affordable housing liability risks.
How do you reflect on the process so far? Is there anything you’d do differently?
Crotty: We had no idea how complex and time consuming this process would be.
While it was necessary, and we believe will be successful, it took a lot of work by a lot of people to get to this place.
We are proud that the industry came together and worked diligently to launch Milford ACI but it was a lot of work.
Do you think Milford ACI shows the increasingly creative uses that captives have in the modern insurance landscape?
George: The formation of Milford ACI showcases how captives can creatively address the insurance challenges of underserved markets.
By focusing on affordable housing, Milford ACI leverages the captive model to provide reliable and cost-effective liability coverage to developers and management groups that would otherwise face limited options.
This approach underscores captives' growing role in providing tailored solutions for industry-specific needs, especially in sectors where traditional insurers may struggle to balance risk and affordability.
How do you think the recent media attention surrounding the New York affordable housing captive could influence the broader understanding of captives and how they can be utilised?
George: The recent attention on affordable housing captives, especially in New York, has elevated awareness of the crucial role captives can play in supporting community-oriented initiatives.
Milford ACI’s formation brings attention to how captives can provide tailored, sustainable insurance solutions for unique sectors like affordable housing.
This growing recognition could encourage broader acceptance of captives as effective tools for industry-specific insurance challenges, ultimately promoting regulatory and market support for similar models across the country.
Do you think Milford ACI could serve as a blueprint for others moving forward?
Crotty: Absolutely, insurance for affordable housing is a national issue and other jurisdictions need solutions like Milford ACI if the industry is to survive. When we began this process, former New York Lieutenant Governor Richard Ravitch, the elder statesman of New York good government, advised us to do the work and prove that the numbers said what we all knew. We are currently working with the three other jurisdictions and my advice to them is to forge a coalition together, have everyone put in skin the game to do the work to prove the concept and then follow our blueprint for captive.
George: Milford ACI’s model has the potential to serve as a blueprint for other underserved sectors, both within affordable housing and beyond. Other sectors with complex liability needs, such as non-profit organisations, environmental initiatives, and healthcare, could benefit from similar captive structures that focus on long-term affordability and stability.
Milford ACI exemplifies how captives can support sector-specific needs, providing both financial benefits and increased stability in markets where traditional insurance solutions are limited.
