Challenges associated with insuring both commercial and residential historic properties have become increasingly more difficult. With fewer and fewer companies willing to insure historic properties and soaring premiums, historic property owners are often at a disadvantage.

In July 2024 the National Trust for Historic Preservation hosted a webinar with key leaders from the insurance, non-profit, and state historic preservation regulatory sectors to talk about what you need to know about the state of the insurance industry today, what is driving up costs, and what you may be able to do about it.

As a follow up to that conversation we asked panelists Meghan Elliott, principal at Jillpine, Kevin Sullivan, vice president and client executive for National Trust Insurance Services LLC, and Stephanie Cherry-Farmer, director, Office of Documentation and Compliance, Historic Preservation Division of the Georgia Department of Community Affairs to respond to questions that we weren't able to answer during the session.

Can insurance companies refuse to insure my property simply because it is a historic structure?

Kevin Sullivan: While I am not an attorney, it is generally permissible for insurance companies to deny coverage for historic properties. As unfortunate as that is, this situation is similar to cases where coverage is denied due to the absence of sprinklers, poor condition of the building, or any other standard underwriting criteria. As a result, insurance companies must seek and receive state approval for any such increases.

Could you summarize the state of the insurance market and how the current environment is contributing to complications for insuring historic properties?

Sullivan: The state of the current insurance market is challenging due to several factors, notably the increased frequency of "billion-dollar weather events" such as wildfires, hurricanes, and tornadoes. 2020, 2021, and 2022 were particularly severe in this category, leading to significant difficulties for insurance carriers. These challenges include a sharp rise in reinsurance costs—essentially the internal costs insurance companies incur to purchase reinsurance—and an increase in the cost of claims, driven by higher construction and labor expenses.

With regard to historic properties, these market conditions have only increased the difficulties in insuring them. Even in a favorable insurance market, historic properties are considered less desirable to insure. In a challenging market like the current one, these properties are viewed even more unfavorably, making it both more difficult and more costly to obtain insurance coverage for them.

How might the historic preservation community advocate for better property insurance policies and dispel misinformation about the implications around historic designation?

Stephanie Cherry-Farmer: A good place to start is reaching out to your state historic preservation office (SHPO) and/or statewide nonprofit historic preservation advocacy organization to ask whether they have engaged with your state’s office or department that regulates the insurance industry. It is helpful to know if these conversations are happening and what resources are available in your state specific to historic resource and property insurance concerns. Not all SHPOs or statewide organizations have the capacity or the authority to engage with state insurance offices, but anyone can contact the office designated with regulating the insurance industry in any state. The Insurance Information Institute offers a directory of contacts for state insurance departments on their website, and consumers can file complaints with these departments.

During the webinar, the GA SHPO mentioned it was communicating directly with the state insurance commissioner about considerations for insuring historic properties. Would it be possible to share this letter so that advocates might replicate this strategy in other states?

Cherry-Farmer: While the Georgia SHPO is unable to share this communication as it is not yet finalized, our office was inspired to undertake this outreach after other SHPO’s, who have collaborated with their state’s insurance commissioners, report positive developments. We based our communication, for example, on one the Colorado SHPO created and is currently distributing. GA SHPO applauds Eric Newcombe and the Colorado State Historic Preservation Office for this model effort.

Would the GA SHPO comment on efforts to organize webinars or other educational programming for Certified Local Governments (CLGs) focused on educating insurance carriers about local historic preservation ordinances and preservation planning?

Cherry-Farmer: This is a fantastic suggestion, and definitely a need that that can be voiced to your state’s CLG program by contacting your SHPO. Georgia SHPO offers CLG training several times annually and we will take this under consideration!

Historic preservation planners also point out that not only is the definition of what local designation means dependent on the specific locality and its ordinances, but also the implications of that designation vary by property and district. For example, some district regulations allow for significantly more flexibility in situations where property owners are attempting to rebuild after a catastrophic or semi-catastrophic event. Consequently, the potential implications of local designation on insurance policies need to be examined on a case-by-case basis.

Regarding implications of insurance policies and properties that include easement protections, one Atlanta-based easement holding organization noted: “I cannot speak specifically to how preservation easements impact insurance rates for historic properties, but I can say that the protections afforded by a preservation easement create additional considerations that need to be well understood by property owners and insurers alike. For properties with preservation easements, insurers importantly need to be certain that the coverage complies with the terms of the easement. For example, if the easement prohibits certain types of development or modifications, the insurance policy needs to reflect and respect these restrictions. Additionally, the easement deed agreement sets specific parameters for how insurance proceeds are to be used in case of loss, including restoration or reconstruction meeting the Secretary of the Interior’s standards. Navigating these considerations often involves working closely with insurance professionals who have experience with properties subject to preservation easements and ensuring that both the insurance policy and the easement terms are well-aligned.”

How does the industry distinguish between replacement value and full replacement value and appraisal value or ‘functional’ value?

Kevin Sullivan and Meghan Elliott: The insurance industry distinguishes between different types of replacement values and appraisals.

1. Actual Cash Value (ACV): Under ACV, payout of an insurance claim is calculated based on the cost to repair the damage, but the payout is reduced by the amount of depreciation due to age and condition of the property – this is similar to how auto insurance works.
2. Functional Replacement Cost: It covers the cost to repair or replace the damaged property using functionally equivalent but often cheaper methods or materials, rather than replicating the original quality, configuration, or materials. For example, a historic building that has been converted to 16 apartments could be replaced with 16 apartments of new construction and still achieve the same function.
3. Replacement Cost: This covers the cost to repair or replace the property using materials of "like kind and quality." However, the interpretation of this language can vary from one insurance carrier to another, making it somewhat subjective. Likewise, not all historic materials or construction techniques are available today.
4. Historic Replacement Cost: If the cost of coverage is not a limitation, then this is the ideal standard for insuring historic buildings. It covers the cost to repair or replace the property using the same historic materials, craftsmanship, and architectural methods that were originally used. However, this type of coverage is not offered by many insurance carriers, making it more difficult and costly to obtain.