Yardi Matrix: Insurance Rates a Growing Problem for CRE Owners
Rising insurance costs present a growing problem for commercial property owners, particularly in states with increasing climate-related risk such as Florida and Texas, reported Yardi Matrix, Santa Barbara, Calif.
“Although rates are rising nationwide, the problem is most acute in states that are experiencing a growing number of extreme weather events that include hurricanes, winter freezes and wildfires,” said Yardi Matrix Director of Research Paul Fiorilla in a Yardi Matrix Bulletin, Insurance Rates Soar Where Climate Risk Abounds. He noted Hurricane Ian caused more than $50 billion in damage in Florida last September.
“Weather-related payouts have left some insurers insolvent, while others are avoiding high-risk states,” Fiorilla said. “The maneuvering translates into higher rates and less coverage for property owners.”
The report said insurance costs have increased 50% or more in some areas, which is starting to threaten new development and property sales.
Danielle Lombardo, the chair of Lockton Global Real Estate, New York, said many reinsurance companies, which insurers use to offload some risk, are quitting high-risk states, and those that stay are raising rates by up to 100%. “Reinsurers are running away from Florida,” she said. “Something has to be done differently.”
Fiorilla noted the “trickle down” effect from a reinsurance shortage will affect the capacity of excess/surplus carriers and managing general underwriters. Rates for property insurance in Florida could 40-50% this year, even in non-coastal areas, the report said.
“The root of the problem is the growing number of weather-related catastrophes,” Fiorilla said. He noted the National Oceanic and Atmospheric Administration reported 18 separate natural catastrophes resulted in total economic losses of $1 billion or more last year.
“Insured natural catastrophe losses have topped $100 billion in three calendar years since 2017, which has raised concerns that insurers’ models will not keep pace with the growing frequency and severity of catastrophes amid climate change,” Fiorilla said.
