When it comes to rising risk, insurers and the commercial real estate industry are in the bullseye together. Climate change is leading to increased frequency and severity of natural hazards, and to a more expensive risk management environment. Insured losses have nearly doubled every decade since 1980, and 90 percent of counties in the United States have been federally declared a natural disaster zone in the last decade.
Recognizing this shared risk, the ULI Randall Lewis Center for Sustainability in Real Estate and the Insurance Institute for Business and Home Safety (IBHS) brought together executives in the commercial real estate and property insurance industry on May 13, 2025, in conjunction with the ULI Spring Meeting and Resilience Summit in Denver, Colorado, to discuss strategies for operating in this environment of growing risk. As Mary Ludgin, event facilitator and senior advisor at Heitman, noted, “Increased conversation between property owners and insurers is a crucial step in managing risk and controlling costs in a tumultuous time of heightened physical risk.”
The convening brought together ULI member developers and owners, as well as insurance brokers, carriers, and catastrophe modelers, including Aon, Liberty Mutual, Moody’s, Travelers, and ZestyAI. Building on the ULI-Heitman report, Insurance on the Rise: Climate Risk and Real Estate Investment Decisions, the discussion explored ways to reduce risk and preserve insurability.
Ten key insights emerged:
Insight 1: Both the insurance industry and commercial real estate industry use risk analytic tools to assess physical risk but do so using different models and for different purposes
Insurers use historic damage data in catastrophe models to understand the likely impact of natural hazards on property, contents, and business interruption. Insurers distinguish between primary perils—which include hurricanes and earthquakes, and are most often associated with catastrophes—and secondary perils such as wildfires, severe convective storms (e.g., tornadoes, hailstorms), and flooding. Secondary perils are now producing catastrophic levels of damage. Whereas primary hazards are well modeled, secondary perils are not, which leads to increased uncertainty and price volatility.
Commercial real estate investors use mapping tools such as FEMA Flood Insurance Rate Maps and CALFire maps to understand hazard exposure. Increasingly, they use climate modeling tools from third-party vendors to understand physical climate risk. Also, they are establishing parameters for how much risk they are willing to take in executing their investment strategy.
Commercial real estate and insurance industry participants noted that models are simply tools and that, although the modeling is directionally correct, the models themselves are not sufficient to gauge and price risk. Additional data is required to assess financial implications of an insurance policy or an investment. On the insurance side, there is a need for more data on hazard mitigation efforts a developer or owner has employed to offset risk, other loss control efforts, and past loss history. On the commercial real estate side, property owners need a better understanding of the market-scale implications of the risk they are taking in owning an asset, the cost of doing nothing, and how the fund/capital objectives influence this analysis.
Insight 2: Building material choice can increase insurance costs
The risk of a structure fire and other noncatastrophe hazards form insurers’ base rate, then catastrophe risk (e.g., hurricane, earthquake, wildfire) premiums are added. Thus, building materials that can increase the risk of structure fire, such as wood-frame or exterior insulation and finish systems, can increase property insurance premiums. Similarly, low-embodied carbon materials may be difficult to insure if they’re perceived as increasing the risk of structure fire. The benefits of low-embodied carbon materials must be weighed against their impact on a structure’s risk profile and the associated insurance costs.
Insight 3: When it comes to insuring a portfolio of assets, one excessively risky asset can drive up the average annual loss for the entire portfolio, thereby increasing the owner’s overall property insurance premium
Assets in hazardous locations, ones with high-loss experience, and ones expected to perform suboptimally in a disaster are more costly to insure, and they affect the premium for the entire portfolio. Insuring high-risk assets individually, rather than within a larger portfolio, can help reduce the overall cost of insurance. Such assets typically benefit from an individualized risk management approach that uses alternatives such as a higher deductible, parametric coverage, or even placement with an Excess & Surplus lines insurance carrier.
Insight 4: Commercial real estate owners need to balance their property insurance policy approach with that of their future buyers
Commercial real estate owners with larger portfolios can often leverage the size and geographic diversity of their portfolios to achieve more favorable property insurance rates, or they can elect to take on more risk themselves through higher deductibles. However, when large firms dispose of high-risk assets, they may face a shrinking buyer pool as investors with smaller portfolios might not have the capital to self-insure and may receive higher property insurance quotes for the same property.
Insight 5: A low-deductible property insurance policy may not be the most efficient use of capital
“For every $1.50 to $2.00 of premium charged, the insured will most likely [receive only] $1.00 back from the insurer,” revealed one insurance broker participant. For this reason, insurance industry representatives recommended that owners choose higher deductibles. The capital saved can then be used for risk reduction, lessening the probability of future claims.
By the insured having more skin in the game, a stronger case can be made for investing in risk management programs such as regular maintenance, resilience upgrades, and loss control. “The more conviction you have in your resilience measures, the more comfortable you can be taking risk [associated with a higher deductible]” stated one commercial real estate participant.
Insight 6: Accepted risk reduction tactics vary by insurance carrier and by property
Insurers are subject to state and federal antitrust laws, which prohibit such things as price fixing, boycotts, refusals to deal, or allocations of markets—and also means that each insurance carrier will have a unique approach to pricing risk and providing discounts or credits for risk-reduction measures.
Sharing internal risk reports and discussing potential risk reduction measures with an insurance carrier can help owners and developers facilitate a cost-benefit analysis to judge the efficacy of mitigating losses, as well as determine what documentation an insurer will require. To encourage such conversations, ULI created the CRE Guide to Natural Hazards and Property Insurance Underwriting, which includes more than 50 risk-reduction measures that may be valued by an insurance carrier.
Science-grounded actions that are evaluated and verified to ensure that risk-reduction performance occurs are more likely to be valued by insurers. For instance, the research-backed, third-party verified IBHS Fortified Program for single-family, multifamily, and commercial properties is often recognized by insurers.
Insight 7: An insurer’s willingness to incentivize risk-reduction measures may vary with the market
Owners, despite implementing risk reduction measures, might not receive a premium-related benefit. This outcome may be more likely in a hard insurance market, when prices are high and availability is lower, as they have been during the last few years. Insurers are typically more willing to provide credit for resilience in a soft market, when insurance carriers are more competitive. By changing a property insurance policy during a soft market, policyholders might not only receive a reduction in premium—thanks to their risk reduction efforts—but could also set a new lower baseline that would reduce the overall cost of future percentage-based increases.
Insight 8: Regular maintenance and loss control measures can be beneficial to premium costs
Insurers are also facing increased litigation costs that contribute to rising premiums. Litigation abuse has become “the biggest issue, besides climate change, in the U.S. when it comes to insurance,” quipped one insurance industry attendee. Robust loss control efforts by owners and proactive maintenance can help mitigate these litigation costs. Risk teams and property-level teams should check insurer recommendations and may be surprised to learn how many easy actions can be completed.
Some property insurance carriers provide discounts for loss-control measures such as technology that tracks electrical surges or water leakage. Owners may be wary of insurer loss control representatives, but these professionals can help keep rates down.
Insurance industry participants also recommended preparing for a new roof replacement schedule, as recent research has found that asphalt shingle roof’s performance against hurricane and high winds degrades with age, starting about 10 years after being installed.
Insight 9: Data sharing, documentation, and communication are critical for accurate rating of a risk
Last-minute requests for an insurance quote are problematic. Ideally, an insurance broker should have 120 days’ notice. This time frame allows for research about the real risk, as well as for communication among the owner, broker, and underwriter, which leads to a more accurate premium.
When it comes to data, insurers have information on construction type, occupancy, protection, and exposure, but they don’t know a building as intimately as an owner or property manager does. The better and more complete a submission is, the better job the broker and underwriter can do on behalf of the client.
Owners have standard data collected during property condition assessments. Now, many leading firms are layering in additional data collection in accordance with the new ASTM E3429-24 Standard Guide for Property Resilience Assessments to help determine the acceptable level of risk an owner is willing to retain. Much of this data could also benefit the property insurance underwriting process. If aligned with standard insurer documentation and terminology, this data collection could seamlessly improve the completeness and accuracy of property insurance submissions, benefiting both insurers and owners.
Insight 10: Conflicts remain between insurers, owners, and lenders
Lender requirements haven’t caught up to the current, heightened risk environment spurred by increasing catastrophic losses. Thus, the low deductibles often required by lenders can result in unaffordable premiums.
Future convenings on this topic, to be hosted by ULI and IBHS, are under consideration. If you are interested in participating in future events, please email [email protected].
