Q&A: How New GSE Insurance Standards Will Disrupt the Market

August 27, 2025

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Danielle Lombardo of WTW on how insurance brokers and real estate borrowers can navigate the stricter mandates.

Fannie Mae and Freddie Mac have introduced more rigid general liability insurance requirements for owners of multifamily housing. These insurance mandates, issued in May by Fannie and September by Freddie, are intended to address growing litigation risks and increase lender protections. But for now, they create turmoil within the market.

“In this market, waiting for a perfect, fully compliant quote is often a losing strategy,” said Lombardo. Image courtesy of WTW

Under the updated requirements, multifamily borrowers must obtain insurance policies that include coverage—without sub-limits and exclusions—for high-risk exposures like assault and battery, sexual abuse and molestation, firearms, animal attacks and habitability claims.

Meanwhile, insurers are increasingly excluding or limiting coverage for these exposures. Failing to secure adequate coverage, Fannie Mae may require multifamily borrowers to escrow up to $250,000 per unavailable policy, broadening insurance’s place on the budget chart.

How can you navigate through these challenges? Here’s what we found out from Danielle Lombardo, chair of Willis Towers Watson’s real estate, hospitality and leisure division. Lombardo has more than 15 years of experience in helping real estate owners navigate through insurance and risk management challenges.

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What premium increases should multifamily owners expect from the 2025 Fannie and Freddie insurance mandates, and how will these affect cash flow and profitability?

Lombardo: For standard general liability renewals without heavy mandate impact, we’re seeing increases in the 10 to 25 percent range. For accounts directly affected by new liability requirements, especially in challenging jurisdictions, between 30 to 75 percent increases aren’t unusual.

At the property level, that can translate to $100 to $200 per unit per year, which directly hits NOI. Owners should be underwriting a stress case and considering ways to offset, whether that’s through operational savings, phased CapEx, rent adjustments or lender concessions.

What practical steps can multifamily owners take now to prepare for these liability insurance mandates?

Lombardo: The most important move right now is to map the lender’s requirements to your current reality—line by line. This means comparing each mandate, from abuse and molestation coverage to assault and battery and habitability, against your existing GL insurance and excess policies. Where there’s a gap, start building the waiver case immediately. That includes loss runs, incident logs, vendor indemnity agreements, lighting and CCTV maps, security protocols and broker declinations, all packaged in a lender-ready format.

Standardizing your risk transfer language across leases and vendor contracts will reduce the exposure before you even go to market. At the same time, pre-negotiate with carriers who might offer even partial solutions, so you’re not starting from zero when the clock is ticking. And finally, budget for multiple scenarios—full compliance, partial compliance with a waiver and non-compliance with a cure plan—so you can protect the debt service coverage ratio and transaction timelines.

What happens if current insurance partners don’t offer these required policies? Have you come across any successful strategies or insurance products that help property owners cost-effectively meet the new coverage requirements?

Lombardo: If your incumbent markets can’t get there, you have to run a two-track process: broaden the marketing to specialty and excess and surplus carriers while pursuing the waiver track with a complete, documented risk package.

Successful strategies I’ve seen include targeted buybacks or sub-limits for specific lender-required perils, higher self-insured retentions paired with documented prevention measures and portfolio aggregation to spread the risk across multiple properties.

In some cases, owners have used a ‘cure period’ approach—binding the best-available program today with a commitment to specific operational improvements and a scheduled policy review in six or 12 months. That keeps financing on track without overpaying for coverage that may not be sustainable.

What options are there to deal with surging premiums, limited carrier options and the risk of failing to secure fully compliant coverage?

Lombardo: You can’t just shop harder—you have to change the profile you’re presenting to the market. That means implementing tangible, measurable improvements in security and operations, documenting them and tying them directly to reduced incident frequency. From a structure standpoint, you can lean on higher retentions, captive programs and tiered towers, where excess attaches above the most expensive layers.

Simultaneously, keep the waiver process moving in parallel. In this market, waiting for a perfect, fully compliant quote is often a losing strategy, especially when the insurance mandates require coverage that may simply not be available in your geography at a reasonable rate.

How should owners update their due diligence process, timelines and transaction planning to mitigate potential insurance-related delays in refinancing, selling or purchasing properties?

Lombardo: Plan for an extra two to four weeks in your critical path just for insurance feasibility and lender review. Engage your broker prior to the letter of intent, so insurance requirements are part of the early deal discussion, not a last-minute scramble. Make the seller’s delivery of complete loss runs a closing condition and build an insurance “data pack” with an accurate statement of values, crime stats, litigation history, life-safety CapEx and security standard operating procedures.

Your term sheets should include insurance cure or waiver language, as well as step-down provisions tied to operational improvements. This ensures the financing stays on track even if the initial program is a partial compliance solution.

Are there insurers currently offering all required coverage at feasible premium rates or is affordable, full compliance generally elusive?

Lombardo: There are pockets of the market where you can get full compliance at a rate that makes economic sense—but they’re the exception. More often, you’ll see partial compliance through sub-limits or coverage carve-backs, paired with a waiver and an improvement plan. In high-crime or high-litigation areas, “available” coverage and “affordable” coverage are two very different things.

Do you know of any creative deal structures or lender negotiations that help owners and investors overcome the new insurance escrow requirements or navigate narrow insurance markets?

Lombardo: Yes. Owners have successfully negotiated escrow step-downs tied to security upgrades, springing compliance terms that allow them to meet requirements over time, and caps or true-ups at renewal instead of posting all the cash up front. The key is to turn your waiver request into a risk-management story, backed by market evidence and operational improvements, not just a plea for an exception.

From a structural perspective, portfolio-level programs, captive retentions, deductible reimbursement agreements and short-term sub-limits with scheduled review milestones have all helped bridge the gap between lender demands and market realities.

What’s your outlook on the insurance market’s ability to develop compliant and affordable liability products in response to these insurance mandates? Is persistent scarcity expected?

Lombardo: In the near term, I expect we’ll see incremental capacity and some innovative Managing General Agent programs, but pricing will continue to reflect the litigation climate. Without meaningful tort reform, scarcity will persist in the toughest ZIP codes and for certain asset profiles. The carriers that do step in will still expect strong operational discipline, clean data and loss-reduction evidence before offering competitive pricing.

Are any policy or market changes expected to tighten or relax multifamily insurance requirements over the next few years?

Lombardo: On the tightening side, a spike in premises liability claims or another round of headline verdicts could push lenders to standardize around the most restrictive terms. On the other hand, we could see agencies refine their guidance to make waivers more predictable and recognize documented risk improvements. At the state level, tort reform—if it happens—is the single biggest lever that could restore capacity and affordability in the GL insurance market.