Property owners face reduced net operating incomes as insurers raise premiums, modify terms and conditions, enact stricter underwriting protocols, impose higher deductibles, and reduce coverage. In some cases, the inability to secure adequate coverage that satisfies lender requirements is causing transactions to stall and property valuations to decline.
A recent ULI member–exclusive webinar titled “Climate Risk & Insurance: Is the global real estate sector entering an insurability crisis?” addressed the rising cost of property insurance premiums, impacts on commercial real estate, and strategies for protecting long-term profitability. The panelists were Laura Craft, global head of portfolio sustainability strategies for Heitman; Kevin Madden, managing director, real estate practice leader for Aon; and Risto Schmid, head of climate resilience for ZRS (Zurich Resilience Solutions) Switzerland. Simon Chinn, vice president of research and advisory services at ULI, moderated the panel.
In this extended Q&A, webinar panelists address additional questions posed by participants:
Nishu Sood, ULI Westchester/Fairfield: What property types have seen the most significant increases in insurance rates? Or is it primarily driven by location (e.g., Florida)?
Kevin Madden: It is both property sector and geographic. Multifamily wood-frame garden-style apartments and any other wood-frame construction properties have had the most adverse premium increases and coverage restrictions. Replacement-cost inflation drove a significant portion of the premium increase. Prior to the steep inflation, many multifamily wood-frame garden-style apartments had building replacement costs well below $100 per square foot (0.09 sq m). Underwriters are requiring a minimum of $125 to $150 per square foot.
As for geography/location, due to hurricanes, storm surge, and flood perils, Florida is by far the most challenging area for underwriters. Their cost of capital [reinsurance, etc.] is extremely high. Underwriters need to charge extremely high rates/premiums to offset potential losses. Other challenging areas are the coastal gulf properties—properties exposed to hail, connective storms/tornados, wildfires, and flood. In the aggregate, flood losses are often the largest source of losses for underwriters.
Steven Horowitz, ULI New York: How often do insurers refuse to renew certain policies? Do regulators restrict insurers from taking such steps?
Kevin Madden: Commercial insurance companies have detailed internal underwriting guidelines. Wood-frame construction and habitational [apartments and hotels] are often prohibited classes of business. Underwriters are required to provide the insured with a “notice of non-renewal” prior to the renewal—10, 30, 60 or 90 days prior to renewal. This is an endorsement to policies. Underwriters are also required to provide notice if they expect the premium/rate to increase by over 10 percent. Issuance of these notices was very common during the recent hard market.
Regulators focus on personal lines [homeowner, personal auto, etc.] and small business insurance. They are not as focused on the large commercial lines/commercial real estate exposures. It is important to note that insurance companies are for-profit companies and have an obligation to their shareholders. Regulators have a difficult balancing act of keeping insurance companies writing insurance in their state and providing competitive rates. Remember, insurance companies can withdraw from writing insurance in certain states—which is what happened with many homeowners’ insurance companies in the state of Florida. When they could not make a profit, they simply withdrew from the state.
Bri Walling, ULI Southwest Florida: How are insurance underwriters assessing newer building materials like composites, which increase durability and reduce degradation? Is that a metric underwriters currently consider? And is it on a per-square-foot basis?
Kevin Madden: The age of the building is a very important data requirement for underwriters. Obviously the newer the construction, the more favorable the risk. Any improvements above and beyond current building code requirements should be detailed to underwriters. This definitely creates a more favorable risk for underwriters.
Christopher Ross, ULI Triangle: Are you finding lenders are willing to accept the argument to insure up to probable maximum loss rather than total replacement cost? How often do lenders accept insurance coverage only up to probable maximum loss? I expect there is typically a big gap between those two coverage levels.
Kevin Madden: It really depends upon the lender. We find the CMBS [commercial mortgage–backed securities] lenders to be the most rigid. Although they are reluctant to change the lending insurance requirement, lenders provide annual exceptions and allow for lower limits equal to the probable maximum loss. Lenders’ consultants frequently ask for the supporting catastrophic modeling, both per property and insured portfolio.
Laura Craft: It depends on the lender. Some lenders are willing to insure to probable maximum loss; others require total replacement costs. Overall, lender-imposed insurance demands often exceed the recommendations from brokers’ hazard-based risk assessments, leading to higher-than-expected insurance costs for borrowers. While such lender insurance requirements are not new to the commercial real estate market, their economic impact has intensified due to higher deductibles and rising insurance premiums, forcing investors to adjust their strategies, seek alternative lenders, or even reconsider certain investments.
Anonymous audience question: What is parametric insurance, and how is it used? Do you see parametric insurance being the future in higher risk areas like Florida?
Kevin Madden: Parametric insurance is event triggered, i.e., in a defined geographic area, a certain hurricane cat (3,4, or 5) level, flood/rainfall of certain number of inches. Insurance proceeds are paid whether or not there is a loss to the property. Parametric insurance is one of many risk transfer tools utilized by insurers as reinsures, hospitality groups, [or] consumer goods companies that focus on certain areas. For real estate, parametric insurance does not replace traditional insurance; it is in addition to traditional insurance. Since the insurance is not triggered by a loss at the property, lenders are reluctant to accept parametric insurance.
Kathleen Iriarte, ULI Hawaii: What are companies doing to reduce the cost of insurance?
Kevin Madden: Real estate companies are taking a hard look at the limits purchased and deductibles. As I stated, the definition of insanity is doing the same thing over and over again, expecting a different result. Next-generation placements need to be explored, including captives, structured programs, reinsurance, et cetera. Also, complete construction details of the insured portfolio are critical.
Laura Craft: Property investors are actively exploring ways to manage increases in insurance costs that include taking on larger deductibles and more upfront risk. Many property investors also bundle together geographically diverse assets as a portfolio to insure at more affordable rates and assemble multiple insurers to meet their coverage needs as a primary strategy of reducing insurance costs.
Esteban Biondi, ULI Southeast Florida/Caribbean: Does insurance recognize resilience through reduced premiums?
Kevin Madden: Absolutely. Any resilience should be submitted and highlighted to underwriters. Make sure the resilience is added to the hurricane, wind, storm surge, flood PML [probable maximum loss] models. Too often, this critical data is not relayed to the underwriters and the models.
Anonymous audience question: How do you unlock favorable insurance rates from including prevention in your design approach? Are you seeing any concrete examples of reduced insurance premiums from owner investment in resilience assessments, and/or after they’ve implemented property level adaptation measures?
Kevin Madden: Any improvement in resilience should be submitted and highlighted to underwriters. A prime example is when insureds upgrade with hurricane-proof windows. The insurance hurricane/wind models have a significant credit for hurricane-proof windows, which should result in corresponding premium savings.
Risto Schmid: Risk, in the context of insurance, can be broken down into three primary components: hazard (e.g., earthquakes, floods, hurricanes), exposure/vulnerability, and controls. Conducting a thorough risk assessment to identify potential hazards and vulnerabilities and subsequently implementing specific controls can help reduce the expected loss in case of an event. For properties vulnerable to flooding, elevating essential utilities (including HVAC systems, electrical panels, and water heaters) above the base flood elevation, along with ensuring the property is equipped with adequate drainage systems, sump pumps, and well-maintained gutters and downspouts, are potential measures to consider. Ideally, such measures are implemented during the construction phase and in consultation with the insurer. Finally, it is important to remember that insurance rates depend on various factors, with prevention measures being just one.
Greg West, ULI Dallas: What source/resource can a developer use to determine what expected impact on insurance rate will come from investment in resilient features in a building?
Matt Strauss, ULI Tampa Bay: Similarly, as a developer, is there a way to get a numerical idea on insurance resiliency credit when analyzing budgets, like for irrigation installation, for example?
Kevin Madden: The insurance broker/agent should have the ability to model the risk, including the assumption of the upgraded resilience. This will quantify the potential credit. It is important to note that the catastrophic models have different and detailed codes for various construction inputs. Make sure the correct codes are utilized.
Anonymous audience question: How can owners be proactive in proving to insurers that they’ve implemented mitigation measures? Should owners share their mitigation plan to insurers to negotiate rates before moving forward with implementation?
Kevin Madden: Any and all mitigation measures should be highlighted for the insurers. The broker should include this information in their submission to insurers. Absolutely the mitigation plan should be shared with the broker and underwriter. Although the insurer may not commit to a dollar amount, it will certainly help with the underwriting. The broker should be able to provide a range of savings.
Anonymous audience question: Thoughts on the booming South Florida market, Miami specifically? It’s a bit baffling, as an onlooker, to see the amount of money that large companies, presumably with access to good data, are putting into long-term investments in a geography whose environmental viability seems to be unanimously looked at as questionable. The real-life investment practices of these large corporations seem to contradict popular climate change sentiment.
Laura Craft: As studied in our Climate Migration and Real Estate Investment Decision-Making , demand for some markets exposed to climate risk is high, mainly due to lower overall cost of living and higher quality of life. For property investors, higher insurance costs are a factor negatively impacting net operating incomes, especially for properties that cannot pass through insurance to tenants/residents. For investors with large portfolios, higher insurance impact is still relatively small in the overall calculus; margin erosion is most significant for the residential sector.
As insurance costs increase, property investors are monitoring potential insurance-driven migration, the growing insurance protection gap, and the viability of government-backed insurance programs. Insurance-driven migration reflects the fact that some of the fastest-growing markets globally are in environmentally fragile locations, particularly in the U.S. Rising homeowner’s insurance costs could affect locational decisions by individuals and households and reduce demand in the residential sector. Over time, if migration shifts translate into higher labor costs as the labor pool shrinks, this could affect corporate locational decisions, which could, in turn, affect real estate values. Property investors are monitoring these factors that could influence the future viability of markets exposed to high climate risks.
Dive deeper into property insurance and commercial real estate in the ULI-Heitman report, Insurance on the Rise, and the special chapter ‘Calibrating Energy Transition and Climate Risk’ in the Emerging Trends in Real Estate® Europe 2025 report.
Explore how resilient construction can reduce insurance premiums at the ULI Resilience Summit. Learn more and register here.
