A Storm Brewing in Commercial Real Estate: Insurance Costs Soar Across the U.S.

Not long ago, the cost of insuring an office tower or a shopping center was a background worry – a predictable line item in a deal budget. Today, it has surged to the forefront. Across the United States, owners of office high-rises, strip malls, warehouses and apartment complexes are opening their insurance renewal notices with alarm. Premiums are climbing at a historic pace, turning a once-stable expense into a volatile factor that can make or break a real estate deal. One Midwestern apartment operator noted that property insurance jumped from 6% of total operating expenses in 2020 to a forecasted 14% in 2024 – more than doubling its share of the budget. “We estimate that over 50% of our overall operating expense inflation since 2020 can be explained by property insurance,” the owner said in a recent Federal Reserve survey. His bewilderment is echoed nationwide. In 27 consecutive quarters through mid-2024, U.S. commercial insurance rates kept rising relentlessly, as insurers delivered steady premium hikes to offset mounting catastrophe losses and even the creeping costs of litigation and claims – what the industry calls social inflation. Now, from coastal Florida to the Great Plains, the steep climb in insurance is reshaping how commercial real estate gets bought, sold, and built.

Record Increases Across the Board

Years of hard market conditions in property insurance have reached record levels. Double-digit rate hikes have become routine for many properties, especially those with any hint of elevated risk. According to Moody’s Analytics, the average annual growth rate of commercial property insurance costs nationwide has been about 9.7% since 2017 – a sharp departure from the gentle 2–3% yearly increases that underwriters once assumed. In 2023, this trend crescendoed. Industry data show premiums spiked 20.4% on average in the first quarter of 2023, easing only slightly to 18.3% by late 2023 – record-setting levels for the sector. Even in early 2024, most policy renewals brought double-digit jumps (around 10–11%) for U.S. property owners. It was the 25th straight quarter of rising property insurance prices by the end of 2023, the culmination of a hard market that began in 2017 and intensified with each passing disaster and inflationary spike.

For some owners, these averages understate the pain. Particularly hard-hit assets have seen staggering surges. In 2023, certain commercial properties in high-exposure areas experienced premium increases of 50% or more upon renewal, according to industry brokers, and “a doubling of premiums won’t be out of the question,” one report warned. Nowhere was this more evident than in Florida, where a new analysis in early 2023 predicted 45–50% insurance rate jumps statewide – including inland areas traditionally seen as safer – on top of years of prior increases. By one estimate, commercial property insurance costs in Florida soared 125% in the five years ending 2023, with roughly 27% annual jumps in the last two years alone. The pattern is national: double-digit premium inflation has plagued virtually every region and property category. “Skyrocketing premiums are a nationwide issue, [but] states exposed to climate-change-related risks will feel the most pain,” noted a Yardi Matrix analysis, pointing to Florida and similarly storm-prone Texas as epicenters.

As each renewal cycle brings more bad news, insurance has transformed from a footnote to a headline concern in commercial real estate. Rising premiums have become the primary driver of growth in insurers’ commercial property revenue in recent years, rather than new business. And while there are early signs the worst may be over – by mid-2024 the relentless upward spiral finally plateaued, with overall U.S. commercial pricing flattening and even dipping slightly for the first time since 2017 – the cumulative impact is already profound. On average, insurance costs for commercial buildings nearly doubled over the past decade, leaping from about $1,558 per building per month in 2013 to $2,726 by the end of 2023. Each percentage point climb in premiums eats directly into a property’s net income, eroding value. For some landlords, insurance is now gobbling up double the shareof property revenues it did just a few years ago. One analysis found that for the most affected commercial assets, insurance went from 6.7% of revenue in 2018 to 13.4% in 2023, as premiums outpaced rent growth. In other cases, owners report their 2024 insurance bills are literally twice what they paid in 2021. Such dramatic increases, once almost unthinkable, have become reality in an era of overlapping economic and environmental pressures.

Why Are Premiums Climbing So Fast?

Multiple forces have converged to drive U.S. commercial property insurance into this hard market. Climate and natural disasters top the list. Insurers have been staggered by a series of costly catastrophes in recent years, many tied to climate change and extreme weather. The United States – by virtue of its size, geography and development in vulnerable areas – leads the world in the frequency and cost of severe weather events. In 2023 alone, a record 28 separate disasters caused over $1 billion each in damage, from hurricanes and floods to wildfires and convective storms, racking up about $92.9 billion in total insured losses. That was 56% higher than the previous year and nearly 180% above the annual loss level of a decade earlier. Insurers have paid out enormous sums after events like Hurricane Ian (which devastated Florida in 2022 with an estimated $50+ billion in damage), record wildfire seasons in California, and serial outbreaks of hailstorms and tornadoes across the middle of the country. “Increasing climate and catastrophe risk, particularly secondary perils, drive losses,” explains Dale Porfilio, chief insurance officer at the Insurance Information Institute, referring to perils like hail, tornadoes, and flash floods that are happening with unexpected ferocity. These mounting losses triggered the initial wave of premium hikes as insurers sought to recoup payouts and build reserves for the next big one.

Compounding the pressure, reinsurance costs have soared. Reinsurance – the insurance for insurance companies, which backstops major payouts – became markedly more expensive and harder to secure after globally significant disasters hit in succession. In 2023, many primary insurers saw their reinsurance partners raise rates or pull back, forcing changes in coverage structures. Major reinsurers cut capacity or demanded higher pricing, prompting primary carriers to lower coverage limits and take on higher deductibles themselves. This effectively passed more risk back down to insurers’ own balance sheets. To compensate, insurers in turn raised prices for policyholders and grew more selective about risks. Capacity constraints in the insurance markets – fewer companies willing to write policies in high-risk areas – “compounded this hardening” trend of relentless rate increases. In short, as one veteran broker put it, everyone was paying more for less coverage.

Economic factors have played a significant role as well. Inflation in construction and repair costs – from lumber and steel prices to contractor labor rates – means that when a building is damaged, the claim is costlier to settle. The late-pandemic inflation surge saw replacement costs jump by double digits, especially in 2021–22, so insurers had to adjust premiums to keep pace. Even “loss cost inflation” – the expense of paying claims beyond just materials, including legal fees and medical costs in cases of liability – has risen. Insurers point to “economic and social inflation”driving up claims payouts, whether through pricier settlements or more litigious claim environments. All of that gets baked into premiums over time. For a while in 2021–2022, property insurance price increases actually lagged behind general inflation. But by 2023, that flipped – insurers were raising rates faster than inflation, determined to catch up The result: policyholders facing outsized adjustments on renewal.

Another culprit is property valuations and underinsurance. Many commercial buildings have turned out to be insured for less than their true replacement value – a gap revealed when disasters strike. A recent study by Kroll found 90% of appraised commercial buildings were underinsured, and over two-thirds of those appraised in 2020–2021 were undervalued by 25% or more. In practice, that means insurers realized they had more exposure than they thought. As a corrective measure, carriers have been pushing owners to update their property valuations and often charging higher premiums as those values rise. A leading insurance executive warned that this “undervaluation risk”could inject volatility: as more claims emerge where coverage limits fall short, both insurers and insureds face unpleasant surprises. The industry’s response has been to demand data-driven accuracy – detailed replacement cost estimates, professional appraisals, and higher insured limits – which naturally result in higher premiums paid.

Meanwhile, coverage terms are tightening. Faced with years of heavy losses, insurers are not only charging more but covering less. Policies in many cases now come with higher deductibles, new exclusions and sublimits for certain perils. For example, wind and hail deductibles have climbed steeply in the past few years – in one Federal Reserve Bank survey of apartment owners, average deductibles jumped 700% since 2021 for some respondents, far outpacing premium increases. A number of owners report that insurers simply won’t cover certain risks anymore (for instance, a policy might exclude coverage for windstorm damage in hurricane-prone zip codes, or for riot and civil commotion in cities that saw unrest in 2020). Those that still offer such coverage often charge a hefty surcharge. Between rising deductibles and added exclusions, owners are assuming more risk, the Minneapolis Fed researchers note dryly. This means even as they pay more, property owners must budget for the possibility of covering initial losses out-of-pocket or self-insuring certain scenarios that used to be standard in their policies.

All these factors feed into one outcome: a broad hardening of the market. “Double-digit rate increases have been common in recent years, particularly for properties in high-risk areas or those with poor loss histories,” reported the Insurance Information Institute in late 2024. Put simply by another industry expert: insurers have needed the hikes “to offset pressures from catastrophes and economic and social inflation.” The effect has been a five-year drumbeat of premium increases that only now is seeing some respite. Strong underwriting profits in commercial lines during the past year and improved investment returns (thanks to higher interest rates) have finally given insurers a bit of breathing room, prompting more competition in certain segments. In fact, by the third quarter of 2024, an Aon report found the average U.S. commercial property rate change turned slightly negative – about –1%, after more than six years of steady increases. But this softening is uneven and fragile. Insurers remain wary of the next big catastrophe season, and high-risk locations continue to command premium prices. The consensus: absent a truly major shock, the overall market may stabilize in the near term, but for high-exposure properties the hard market is far from over.

Coastal vs. Inland: A Geographic Split

The insurance crunch is national, yet it plays out differently by region. Coastal states, with their hurricanes and sea-level perils, and western states, with wildfires and earthquakes, have long paid more for property insurance. Now the gap is widening. “States exposed to climate risks will feel the most pain,” the Yardi Matrix report observed. In data compiled by Deloitte, commercial buildings in the 10 states with the highest expected natural hazard losses (a list that includes Florida, Texas, Louisiana, and California, among others) saw insurance costs jump 31% in just one year, and a staggering 108% over five years. By contrast, in states deemed lower-risk, insurance costs still rose – about 25% in one year and 96% over five years – but those increases were marginally less severe. Essentially, everywhere got hit hard, but the highest-risk locales got hit hardest of all.

Take Florida as a bellwether: even before Hurricane Ian’s devastation in 2022, premiums there were surging due to a series of storms and a troubled legal environment for insurers. By 2023, commercial insurance in Florida was in full-blown crisis. Many national carriers had pulled back or capped their exposure in the Sunshine State, leaving a thinner pool of providers free to charge what the market would bear. Local brokers warned clients to brace for 40–50% jumps on renewal, and some indeed faced 100%+ increases. Crucially, it wasn’t just Miami beachfront towers or Tampa industrial parks near the bay – even properties in inland Florida, far from storm surge zones, saw punishing hikes. When Hurricane Ian ripped through the state’s Gulf Coast, causing tens of billions in insured losses, it pushed a number of smaller insurers into insolvency. The remaining companies, understandably skittish, raised prices across the board and tightened terms further. In Texas, likewise, insurers cite not only Gulf hurricanes but also hailstorms, tornadoes and even the deep freeze of 2021 as reasons for hefty increases. One Texas community with no claims in four years and no change in coverage still got a 17% premium hike, a Dallas-based advisor noted, illustrating how even a clean record doesn’t spare you in a state prone to big wind and hail.

Coastal urban centers around the country are experiencing a similar reckoning. From the Carolinas up through New York and New England, properties are contending with higher wind insurance costs post–Hurricane Sandy and other storms. On the West Coast, the wildfire seasons of 2017–2020 in California led some insurers to non-renew policies on properties tucked into wildfire interface zones or to introduce wildfire deductibles and surcharges. Even where wildfires haven’t struck, the risk has been priced in. States like Colorado, Arizona and Oregon – once considered relatively moderate risk – have seen major wildfire events in recent years that shifted underwriters’ views. Meanwhile, earthquake coverage (usually bought separately) has its own dynamics, but many all-risk property policies exclude quakes entirely or offer only limited coverage unless additional riders are purchased, adding yet more cost for West Coast building owners.

Interestingly, the harshest rate hikes of 2023–24 have started to ease exactly in some of these catastrophe zones. As new capital and capacity have cautiously entered the market, insurers have begun competing again for desirable risks. In Florida, industry reforms (such as curbing litigation on insurance claims) and a quieter 2023 hurricane season led to some stabilization. By late 2024, anecdotal reports suggested that South Florida commercial property rates were finally leveling off or even declining in some cases. One Miami broker said it was the first time in years that renewals “are starting to decline, sometimes by double digits”, giving hard-hit owners a rare bit of relief. Aon’s data reflects this broader trend: by the first half of 2025, average U.S. property insurance prices had swung to single-digit decreases year-over-year. For instance, insurance programs with heavy hurricane exposure in Tier 1 coastal counties saw some of the largest price drops as new reinsurer capital pushed down catastrophe rates.

Yet experts caution that this softening is tentative. If a major storm or series of disasters strikes in the coming year, the respite could be short-lived. Indeed, climate volatility guarantees regional disparities will persist. The Deloitte Center for Financial Services projects that by 2030, the cost premium for being in a higher-risk state will grow — insurance for a commercial building in a hazard-prone state could be roughly 24% higher than the U.S. average, whereas buildings in lower-risk states might enjoy about a 32% discount relative to the average. In other words, location will matter even more. Already, being in a hurricane zone or wildfire belt can mean paying multiples of what a similar building in, say, the Midwest heartland would pay for insurance. The flip side: even inland areas are not immune. Regions once thought safe have had costly surprises (a freak Derecho windstorm in Iowa, catastrophic flooding in central Tennessee, severe hail in Denver). Those events have insurers reevaluating “inland” risk, too. As one industry saying goes: everywhere is coastal now, when it comes to extreme weather.

The data bears it out – while high-risk states saw a 108% jump in insurance costs over five years, the so-called safer states weren’t far behind with a 96% jump. Whether on the coasts or in the interior, U.S. commercial properties are grappling with an unprecedented insurance squeeze. But the worst pain is unquestionably concentrated in regions where Mother Nature’s fury has been most pronounced.

Office, Retail, Industrial, Multifamily: No Escape

The insurance crunch cuts across all major property types – each with its own wrinkles, but all feeling the strain. Historically, different sectors had varying risk profiles: for example, multifamily (apartments) often saw more frequent small claims (water leaks, tenant mishaps), industrial properties could face fire or machinery breakdowns, retail centers worried about liability from slip-and-fall incidents, and office buildings tended to have stable loss records and strong fire safety systems. But in the current environment, everything is trending up together. “The trend is consistent for all of them,” Moody’s analysts found, noting that since 2018 all property types have experienced a noticeably higher rate of insurance cost increase than in prior years. No asset class has been spared from the upward march in premiums. That said, some nuances have emerged in how the insurance spike is playing out for offices versus apartments versus shopping centers and warehouses.

Office Properties: Storm Clouds for Towers

For owners of office buildings, these rising insurance costs come on top of other well-documented challenges (higher vacancy rates due to remote work, refinancing stress from rising interest rates). In many cases, the property insurance bill for an office tower or campus was once a relatively modest expense, often passed through to tenants under net leases. Now it’s becoming a major consideration. In coastal cities such as Miami, Houston, or New Orleans, office towers face hurricane-driven premium spikes that are changing the economics of leasing space. A Class A high-rise in downtown Miami, for instance, must carry hefty windstorm coverage to satisfy lenders – coverage that has become exorbitantly pricey post-Hurricane Irma and Ian. In New York and other Northeast cities, where hurricane risk exists but is less routine, insurers are more concerned with issues like aging infrastructure (think old electrical or steam systems that can cause fires or water damage) and even civil unrest risk. After the protests of 2020, some insurers reevaluated downtown areas for vandalism and riot exposure. Minneapolis, notably, saw insurers impose riot exclusions or premium surcharges after property damage during civil unrest, even on multifamily and office policies. An office landlord in Minneapolis or Portland today might encounter pointed questions from insurers about security measures and contingency plans for unrest – factors barely on the radar a decade ago.

Even apart from disasters, office properties are grappling with the inflation of building values. Many office owners hadn’t updated their insured values in years, but with construction costs up, insurers are insisting on higher valuations (and thus higher premiums). There is also a subtle effect of occupancy: ironically, a half-empty office building can be seen as a riskier property to insure (if fewer people are present, a small problem like a leak might go unnoticed and turn into a major loss). Underwriters are aware of such concerns, and some are tightening terms or requiring higher deductibles for buildings with high vacancy, treating them a bit akin to partially idle industrial plants.

The result: whether it’s a marquee skyscraper in a coastal metropolis or a suburban office park in the Midwest, insurance costs for offices are up significantly, often by double digits year over year. While comprehensive data by property type is scarce, industry experts say office insurance rate increases have generally paralleled the overall commercial property trend – in the high single to low double digits on average recently. One silver lining for offices: many are solidly built (steel and concrete structures) with robust fire suppression, so they haven’t seen the extreme percentage spikes of some other classes. But any location-specific peril (hurricane, earthquake, flood) will override that. For example, an office complex in coastal Louisiana or a San Francisco high-rise needing earthquake insurance might see far higher jumps than an office in Cleveland or Kansas City. Going forward, office owners are learning that proactive risk mitigation – installing backup power, flood barriers, advanced sprinklers – isn’t just about safety; it can be leveraged to negotiate better insurance terms. Insurers are increasingly rewarding (or at least less severely penalizing) office buildings that demonstrate resilience upgrades, something that “can now materially affect the insurance quote,” according to Coldwell Banker Commercial analysts.

Retail Centers: New Perils for Malls and Main Street

For retail real estate – from neighborhood shopping strips to giant malls – the insurance surge comes amid its own industry evolution. Brick-and-mortar retail was already under pressure from e-commerce, and now property owners must also budget for far higher insurance outlays. Many retail properties are older, one-story buildings with large roofs, which make them vulnerable to hail, wind and heavy rain. A rash of hailstorms in recent years across states like Texas, Oklahoma and Colorado has caused massive roof and skylight damage to malls and big-box stores, sending insurance claims soaring. In one severe convective storm in spring 2024, for instance, hail larger than golf balls pelted a retail corridor in the Great Plains, contributing to an estimated $3.4 billion in insured losses from that storm system. Retail owners in hail-prone regions now often face significant hail deductibles (sometimes 5% of the building value), which they accept to avoid even steeper premiums.

Coastal retail properties – say, a grocery-anchored shopping center in a South Carolina beach town – have seen premiums skyrocket due to windstorm risk, much like other coastal assets. But even inland retail can get hit by surprise factors. The summer of 2020 unrest led to high-profile cases of looting and property damage in retail districts from Minneapolis to Los Angeles; insurers paid out for smashed store windows and fire damage. Now, some carriers exclude riot or civil commotion from standard coverage for retail in certain cities, or they make it an add-on at extra cost. In cities with higher crime rates, insurers are also scrutinizing theft and vandalism histories when underwriting shopping centers. Retail landlords thus face a tough balancing act: paying more for robust coverage or accepting exclusions that leave them potentially on the hook if social unrest or a crime spree occurs.

Furthermore, retail properties often involve triple-net leases where tenants reimburse insurance costs. Those tenants – many of them small businesses – are now grappling with the pass-through of steep insurance hikes. For example, a restaurant tenant in a strip mall might see its CAM (common area maintenance) charges balloon because the property’s insurance went up 30%. In turn, some tenants push back or try to shop for cheaper coverage on their portion, but usually the landlord’s master policy sets the terms. Ultimately, higher insurance costs put upward pressure on rents and can even affect retail occupancy if some tenants can’t absorb the increases. Large mall owners report property insurance premiums as one of the fastest-growing expense lines in recent budgets, outpacing even utilities. As a response, they too are investing in resilience – upgrading roofs to more impact-resistant materials, installing better drainage to mitigate flood risk in parking lots, and even using predictive analytics to plan for extreme weather. These measures can temper future insurance increases. Still, like others, retail owners are at the mercy of macro forces. Whether the peril is a hurricane hitting a Florida outlet mall or a wildfire threatening a California shopping plaza, insurers have recalibrated risk models, and higher rates have followed across the retail landscape.

Industrial and Warehouse: Big Buildings, Big Exposure

The industrial sector – which includes warehouses, logistics centers, manufacturing plants, and distribution hubs – might seem relatively straightforward to insure. Many modern warehouses are simple concrete boxes with advanced sprinklers and are often located in less-populated areas. Yet industrial properties have not been immune to insurance turbulence; in fact, they have a few unique vulnerabilities. The sheer scale of some warehouses today is one factor – a single fulfillment center can sprawl millions of square feet, meaning any one incident (like a fire or roof collapse) can produce an outsized loss. In regions like the Midwest and South, these large, flat-roofed buildings are sitting targets for hailstorms and tornadoes. Insurers learned this the hard way: the devastating Joplin tornado in 2011, or more recently a 2019 tornado in Dallas, obliterated warehouses and resulted in enormous insured losses. Consequently, insurers have tightened underwriting for big-box industrial facilities in Tornado Alley, often mandating wind/hail deductibles (e.g. 2–5% of value) and higher wind-resistant construction standards for new builds.

Coastal industrial properties face the same windstorm issues as other asset classes, but one additional factor is storm surge flooding – think of petrochemical plants or warehouse districts near the Houston Ship Channel that flooded during Hurricane Harvey. Flood insurance for industrial sites has become costlier and sometimes harder to obtain from the standard market; many owners now rely on specialty or surplus-lines insurers for adequate flood coverage, which comes at a premium. In fact, the surplus lines market (insurers of last resort who operate with more flexibility) has grown sharply in places like Florida’s commercial sector, where standard insurers retrenched. The Florida Surplus Lines Service office reported a 42% growth in surplus commercial property premiums in 2023 – a sign that many industrial and other properties had to find refuge with non-traditional carriers willing to underwrite high risks at high prices.

Another emerging issue for industrial insurance is fire risk linked to new technologies. Warehouses increasingly store lithium batteries (in e-bikes, electronics, EV parts) and other commodities that can fuel intense fires, raising concerns for insurers. High-profile fires, like the 2022 blaze at an Amazon warehouse in California, have made carriers more cautious about industrial contents and fire loads. They are asking more questions about what exactly is stored and whether facilities have advanced fire suppression (e.g. foam systems for certain chemicals). This scrutiny can influence premiums or even availability of coverage if a facility is deemed too high-hazard without proper protections.

Despite these challenges, industrial properties have benefited somewhat from insurance market competition. Because many are newer construction and can be geographically diversified, large portfolio owners have been able to negotiate better terms by spreading risk. Indeed, by 2024, some well-protected industrial portfolios saw flat or even slight decreases in insurance rates, as insurers vied for business on accounts with strong loss controls. Aon’s Q3 2024 data showed that “desirable” industrial accounts – including those predominantly catastrophe-exposed but with modern protections – were achieving rate changes from flat to even –15% in some cases. Still, those were the exception. The average industrial property in the U.S. saw notable premium growth over the past few years, tracking closely with the broader market trend. One Moody’s analysis implied that among major property types, multifamily had the steepest insurance growth, but industrial, office, and retail weren’t far behind. All told, the cost to insure the nation’s warehouses and factories has become a key consideration for logistics firms and manufacturers – one that feeds into decisions about where to locate facilities and how to build them to withstand nature’s extremes.

Multifamily Housing: Insurance Shock in the Apartment Market

Perhaps no segment has felt the insurance crunch as acutely as multifamily housing – the apartments, condos and rental homes that tens of millions of Americans live in. Even before the recent spike, multifamily properties tended to pay higher insurance rates than offices or industrial, partly due to the daily-life risks (kitchen fires, slip-and-fall injuries, water damage from plumbing, etc.) and partly due to construction types (many low- to mid-rise apartments are wood-framed, which is more combustible). But the past few years have amplified those factors dramatically. According to Moody’s Analytics, among property sectors multifamily has seen the fastest insurance expense growth since 2017. By 2023–24 it reached a crisis point: “In 2024, multifamily insurance premiums surged an average of 45% year-over-year,” reports Moody’s – one of the steepest one-year increases in memory. That figure, cited in a Coldwell Banker Commercial analysis, underscores how hard it has become to insure apartment buildings profitably at previous rates. Even as the overall commercial market showed hints of moderating by 2024, apartment premiums kept climbing sharply. Industry surveys found multifamily insurance costs rising around 10–12% annually nationwide in 2024 – still outpacing general inflation and rent growth, and in some high-risk regions the spikes were far higher.

Why are apartments getting hammered? One reason is geography: the Sun Belt has seen a huge boom in multifamily development (think Texas, Florida, Georgia, Arizona – states that also happen to have high climate risk). Those new units now face swelling insurance bills. A Minneapolis Fed survey of landlords in the relatively calmer Upper Midwest still showed annual premium increases accelerating from 14% to 22% to 45% each consecutive year from 2021 to 2024. If Minnesota and the Dakotas are seeing 45% jumps, one can imagine the numbers for coastal Texas or South Florida apartments – indeed many reports of 50-100% jumps in those areas have emerged. Additionally, loss histories in multifamily have been tough lately: devastating events like the Surfside condo collapse in Florida (2021) raised awareness of structural risks; winter storm Uri in Texas (2021) burst pipes and flooded countless apartments; and liability claims (like negligent security or habitability lawsuits) have ticked up in some jurisdictions. Insurers thus see multifamily as a riskier bet across multiple dimensions – catastrophe, general damage, liability – and they price it accordingly.

The consequences are stark. Insurance has become the most volatile line item for apartment operators, rising faster than any other expense category. By one measure, insurance costs in multifamily have been growing more than twice as fast as net operating income, a gap that squeezes profit margins. In major cities, operating costs for apartments were rising ~6–7% a year recently, but insurance far exceeded that, eroding what little growth in NOI landlords managed. Small and mid-sized apartment owners are particularly strained – many are seeing renewals come back with premium quotes in the millions of dollars, plus requirements to set aside big reserves, before lenders will close on a deal. CRE Daily, a trade newsletter, recounted cases of smaller landlords being asked to front over $1 million in premiums and escrows just to secure financing on an apartment property. For some, that is deal-breaking territory.

Moreover, lenders are jittery. The agencies that back much multifamily debt, Fannie Mae and Freddie Mac, have started tightening insurance requirements in the face of this volatility. They now scrutinize policies to ensure adequate coverage for things like wind, hail, and even liability exposures that insurers are pulling back on. Danielle Lombardo of Howden (an insurance brokerage) noted that many policies “now limit or exclude coverage categories that government-backed lenders still expect borrowers to carry” – a mismatch that can delay or derail loan closings. Owners may have to secure pricey specialty policies (for example, a separate wind policy if the main insurer excludes wind in a hurricane zone) to satisfy lender mandates. The result: longer negotiations and more frequent closing delays while insurance compliance is ironed out. Some deals have fallen apart when the buyer and seller couldn’t agree on how to handle an exorbitant insurance quote that emerged during due diligence.

Multifamily owners are responding by pulling every lever they can. They are raising deductibles, reducing coverage, shopping among more carriers, and even accepting exclusions to keep premiums down. Many are beefing up safety and maintenance – a well-maintained property with updated wiring and plumbing is less likely to have claims, which they hope translates to better rates. Some are exploring parametric insurance as a supplement (a type of policy that pays out a set amount if a triggering event, like a hurricane of a certain wind speed, occurs). Parametric coverage has gained popularity as it can fill gaps left by traditional policies and provide faster payouts – submission volume for parametric policies jumped 500% in the last year, one report noted. And yes, many are raising rents where they can to offset the higher insurance cost, though rent increases are constrained by market forces and, in some cities, regulation.

The multifamily insurance crisis is not just an industry problem; it has a broader social impact. When insurance eats into operating budgets, repairs and upgrades might get deferred, or development of new housing could slow because projects no longer pencil out. In affordable and workforce housing, rising insurance costs threaten to undermine financial viability, potentially putting pressure on housing costs for lower-income residents. Policymakers and industry groups are beginning to pay attention to this dynamic, recognizing that property insurance – once a background facilitator – is becoming a front-and-center factor in housing affordability.

Underwriting Crunch: How Deals and Loans Are Changing

For investors and lenders, the spike in insurance costs is forcing a recalculation of real estate fundamentals. When an operating expense jumps dramatically, it directly cuts into Net Operating Income (NOI), which is the bedrock of property valuation and loan underwriting. So, across the country, underwriting models are being revised: projected insurance costs in pro formas are being marked up, sometimes doubled, compared to a few years ago. This has an immediate effect of reducing how much debt a property can support (since lenders size loans based on NOI and debt coverage ratios) and lowering the price investors are willing to pay (since their return is reduced by higher expenses).

“Double-digit premium increases in coastal and extreme-weather zones are cutting into projected NOI — altering cap rate calculations and equity returns,” observed a report by Coldwell Banker Commercial. In plain terms, if an apartment building’s insurance bill goes from $500 per unit to $1,000 per unit, that could erase a big chunk of the annual profit, meaning an investor will demand a lower purchase price or a higher cap rate to compensate. Multiply that across many expenses and it contributes to the softening of commercial property values seen in some markets. Insurance used to be maybe 5% of an apartment building’s expenses; now it might be 10–15%. That swing can seriously narrow profit margins, especially in an environment where other costs (utilities, property taxes) are also rising and rent growth is moderate.

Lenders, for their part, are getting stricter about insurance due diligence. Banks and mortgage lenders have always required borrowers to maintain adequate property insurance as a condition of the loan. Now they are digging deeper: Is the coverage sufficient not just for today’s risks but for tomorrow’s? Are there exclusions in the policy that create unaddressed exposures? In hurricane zones, lenders might insist on dedicated windstorm coverage even if the borrower is struggling to find it. In flood zones, they often require maximum National Flood Insurance Program limits or private flood policies on top. Some lenders are even pausing lending in certain high-risk markets because of insurance concerns. “Some lenders have signaled they’re pausing underwriting in markets where coverage is becoming unaffordable, or carriers have exited,” according to the Coldwell Banker Commercial analysis. If you can’t reasonably insure a property, you certainly can’t finance it – that’s the new reality.

Additionally, loan terms are adapting to hedge against insurance uncertainty. It’s become more common for lenders to require insurance escrows – setting aside a chunk of loan proceeds or ongoing cash flow to pre-fund future premium increases. They want to ensure the borrower will be able to pay for insurance not just this year but in years 3, 4, 5 of the loan even if costs spike further. Debt service reserve requirements may be higher for properties in disaster-prone areas as well, to account for potential business interruptions that insurance might not fully cover.

Another shift: probable maximum loss (PML) assessments are increasingly being used in loan underwriting for high-risk properties. Rather than simply mandating full replacement coverage (which can lead to technically “over-insuring” against very rare events), some sophisticated lenders are considering PML – essentially asking, what’s the worst loss likely in a 250-year event, and can we insure to that level? Industry experts have floated this idea, noting that many properties are forced by lenders to buy full limits for extreme losses that rarely occur, and that a PML-based approach could balance protection with cost. There’s no broad consensus yet, but it signals how the dialogue is changing. Lenders, insurers, and owners are exploring new ways to keep properties insurable and financeable without breaking the bank.

Underwriting criteria by insurers themselves have also tightened. Insurers are effectively picking and choosing the risks they’ll take on, which means borrowers need to present a better risk profile to even get a reasonable quote. That can involve risk engineering surveys where underwriters inspect properties or review data on a building’s construction, maintenance, fire protection systems, etc. They might require updates – say, upgrading a fire alarm, or adding hurricane clips to the roof – before agreeing to bind coverage at an acceptable rate. In high-risk zones, some insurers only offer coverage on the condition of a large deductible or co-insurance (the owner shares a percentage of the loss). These stricter terms then feed back to lenders, who must accept that maybe the borrower’s policy has a higher deductible than they used to tolerate, for example, and adjust loan terms accordingly (perhaps requiring a cash reserve equal to the deductible).

All of this is making deal-making more complicated. Real estate transactions now regularly feature an “insurance contingency” – akin to how homebuyers worry about mortgage rates, commercial buyers are concerned whether they can secure an insurance program at a quoted price. Deals have been delayed as buyers shop for coverage or negotiate with sellers to split the cost of unforeseen premium increases discovered late in the game. One recent headline encapsulated it: “Insurance Costs Delay Multifamily Deals Across U.S.”. The article noted that stricter lender requirements and tighter policy terms are complicating closings and underwriting across the sector. Key deal metrics are being revisited. For instance, debt-service coverage ratios (DSCRs) might fall below lender minimums once the new insurance numbers are plugged in, forcing either a bigger equity down payment or a price cut. Cap rates (which move inversely to value) are inching up in part because investors factor in higher op-ex like insurance.

In sum, insurance is no longer an afterthought in real estate finance – it has become a central risk factor that all parties must grapple with early and often. As one commercial real estate advisor put it, today’s CRE players must treat insurance not as a standard cost, but as a strategic risk factor. The deals that get done are those where insurance is addressed proactively, creatively, and realistically.

Owners and Developers: Adaptation in Real Time

For property owners and developers, the insurance spike is prompting both short-term coping strategies and long-term strategic shifts. In the short term, many owners are tightening belts to absorb the hit. They’re reducing discretionary spending, delaying non-essential capital improvements, and in some cases raising rents or fees where market conditions allow (though passing on insurance costs to tenants is easier in some sectors, like triple-net retail, than in others, like rent-regulated apartments). A recent GlobeSt. report noted operating costs for multifamily in major cities are rising around 6–7% annually, largely due to insurance, and landlords are finding their margins squeezed as a result. Some owners of rent-regulated buildings (for instance, in New York City) have loudly argued that soaring insurance and taxes, without commensurate rent increases allowed, are pushing their finances to a breaking point.

Developers of new projects are also recalibrating. When projecting operating costs for a proposed building, they must now assume much higher insurance bills than a few years ago. This can make borderline projects unfeasible. For example, a planned coastal condominium might no longer pencil out if the annual insurance is expected to be 3-4x what was initially budgeted. We have already seen some developers shifting focus away from the riskiest locations. Anecdotally, a few Florida condo projects were shelved or scaled back as insurance quotes came in astronomically high and investors balked. In wildfire-prone parts of California, builders are exploring higher fire-resistant standards (concrete construction, fireproof siding) not just for safety but in hopes of qualifying for insurance at all. Resilience is becoming a selling point: a new warehouse in Oklahoma might market its hardened roof and hail-resistant design as an “insurance-optimized” feature to attract tenants who know those features could save them on CAM insurance costs.

Another consequence: more owners are exploring alternative risk transfer. This includes joining insurance captives (group self-insurance programs) or forming their own captive insurance companies to cover certain layers of risk. Large portfolio owners, like big REITs, have ramped up use of captives to insure, say, the first $5 million of any property loss in-house, and only buy external insurance for losses above that. This can be more cost-effective if done right, and it gives owners more control (albeit at the risk of eating some losses). The parametric insurance trend fits here too – an owner might buy a parametric hurricane policy that pays out $X if a Category 4 storm passes through their county, which can provide quick liquidity for recovery even if the traditional insurer is slow or if some losses fell below deductibles. These innovative solutions are not mainstream yet, but interest is high.

Owners are also investing in risk mitigation like never before. As highlighted earlier, upgrades that harden a property against disasters can yield real insurance dividends. We’re seeing coastal building owners install hurricane shutters, impact-resistant glass, reinforced roofs, and elevation of critical equipment to higher floors to reduce flood risk. In wildfire zones, some are creating defensible space around properties, using fire-resistant landscaping and installing ember-resistant vents. Insurers have begun to offer premium credits or at least more favorable terms for such efforts. It’s akin to how homeowners might get a discount for adding a security system or a new roof – only on a larger commercial scale. As Coldwell Banker Commercial noted, “securing better premium terms increasingly hinges on property-level upgrades” – everything from roof hardening to improved sprinkler systems to flood mitigation measures can now materially affect quotes. Some owners now factor an “insurance ROI” into their capital improvements: how much will this $100,000 roof upgrade save me in premiums over the next 5 years?

For developers, site selection now includes an insurance lens. There’s growing wariness of building in the most hazard-prone zones unless returns are very compelling. A development company might reconsider a project in a coastal barrier island or a wildfire-interface hillside, not just because of the physical risk but because the carrying costs for insurance and potential difficulty of resale (if future buyers can’t afford or obtain insurance) make the investment less attractive. Instead, they might focus on areas a bit inland or generally perceived as safer. While this shift is nascent, some industry observers predict a “climate risk premium” will increasingly shape real estate investment decisions – effectively, properties in safer zones could command better pricing and interest because they come with the benefit of more manageable insurance costs over time.

Budgeting practices have also changed. Many owners now include an “insurance inflation” line in multi-year budgets, often assuming high-single or low-double-digit increases each year for the foreseeable future – a far cry from the old days of pegging it to general inflation or a nominal 3%. Asset managers are stress-testing their portfolios against scenarios of even more extreme insurance hikes to understand where vulnerabilities lie. This is prudent given the unpredictability of climate events; a single active hurricane season or another major urban riot could send premiums into another spike.

Finally, property owners are leaning on advocacy and policy efforts. In some states, real estate coalitions are pressing for insurance reforms to stabilize markets. Florida, for example, enacted legal changes to curb lawsuits and create a reinsurance backstop fund, aimed at luring insurers back and moderating rates. Similar discussions are happening in Louisiana and California, where state-backed insurance plans or incentives are being considered to ensure availability. Owners and developers are key voices in those debates, highlighting that if insurance becomes unattainable, development and economic growth will suffer.

In essence, the commercial real estate industry is in triage mode: adapt, innovate, or see projects falter. Those who treat rising insurance costs as a new normal – something to manage through savvy strategy – are more likely to thrive. As one commercial brokerage put it, those who proactively adapt will protect their NOI and deal pipeline, while everyone else risks getting priced out. In the crucible of this insurance crisis, we are likely to see a shakeout: properties that can weather the storm (literally and figuratively) will maintain value, and those that can’t may change hands or usage.

The Next Five Years: Forecasting a High-Pressure System

Looking ahead, the pivotal question is whether this surge in insurance costs is a cyclical peak that will gradually recede, or a “new normal” of generally higher costs and volatility. Industry opinions differ, but a few themes emerge. On one hand, there are signs of stabilization in the insurance market as of late 2024 and 2025. Strong profitability in some commercial insurance lines and influxes of new capital have improved capacity. Marsh McLennan reports that by early 2025, insurer competition intensified and property insurance rates in the U.S. actually declined by single digits on average – the first real softening after 25 hard quarters. Willis Towers Watson’s index showed overall commercial premiums rising just 5.3% in Q1 2025, down from 6.3% a year prior, indicating momentum is cooling. Aon’s data for mid-2025 captured an average –8.5% rate change in Q1 and –12.6% in Q2 for U.S. property placements, confirming a notable shift to a buyer’s market. In plain language: after years of relentless hikes, some buyers are finally seeing flat or even reduced quotes, especially on well-protected assets. Insurance executives are cautiously optimistic that 2024–2025 will mark a turning point toward more normal conditions, barring any cataclysmic events.

Yet, “soft” is a relative term. Even if property insurance rates decrease a bit, they are falling from an elevated plateau. The reduction might only shave off part of the huge increases of recent years. For example, a premium that doubled over three years might come down 10% this year – helpful, but still much higher than in 2019. And crucially, the relief is uneven. Triple-I’s latest briefing emphasizes that high-risk exposures will likely continue to see above-average rate pressure. Double-digit increases are likely to persist for high-risk properties even as safer risks see flattening. Climate trends, unfortunately, aren’t favorable. The frequency of billion-dollar disasters is on an upward trajectory; one analysis warned that by 2030 we could be facing around 40 separate billion-dollar weather events per year, up from the current high-20s. If that materializes, even an expanded insurance industry capital base could be tested, leading to renewed hardening.

Most forecasts predict continued growth in premiums, but at a moderated pace. Swiss Re’s outlook for U.S. property insurance expects premium growth to ease slightly to mid-single digits annually in the next couple of years, assuming increased competition and normalizing reinsurance costs. However, Deloitte’s more long-range projection foresees a robust climb: the average monthly cost to insure a commercial building could rise from $2,726 in 2023 to roughly $4,890 in 2030, an 8.7% compound annual growth rate. In high-risk states, the projected trajectory is even steeper – a 10.2% CAGR, which would effectively double the 2023 insurance cost by 2030 (from about $3,077 to over $6,000 per month per building). Such projections assume that the mix of risks (and responses to them) stays on its current course. They factor in not just anticipated weather losses but also things like economic inflation coming down to moderate levels and insurers’ investment returns improving with higher interest rates (which can offset some underwriting losses).

One crucial variable is the reinsurance market. Reinsurance tends to run in cycles of its own. After the price spikes of 2023, there are early indications of a reinsurance glut emerging – more firms willing to offer catastrophe cover as they deploy fresh capital. Analysts observed that global property catastrophe reinsurance rates were “flat to down mid-to-high single digits” at 2024 mid-year renewals, after rising sharply the year before. If reinsurers truly regain appetite and lower their charges, primary insurers can pass those savings on to customers or at least stop raising prices. Guy Carpenter (a reinsurance broker) noted modest growth in reinsurance market capacity and investmentin late 2023, which improved the outlook for primary insurers. The big caveat: a couple of severe catastrophe years could quickly tighten that market again. 2024’s hurricane season, for instance, ended up with two major U.S. landfalls (hypothetical “Hurricane Milton” and “Hurricane Helene”, which were cited as causing $25B and $16B in losses respectively). Those were significant, but overall insured catastrophe losses in 2024 were actually slightly below the previous three years – hence the breathing room. Should 2025 or 2026 swing above average in losses, insurers will likely respond with another round of hardening, albeit hopefully not as severe as 2020–2023.

The industry is also banking on better data and technology to help stabilize things. Advances in predictive modeling, AI-driven risk assessment, and satellite monitoring of properties could enable insurers to underwrite more precisely and price risks more fairly. If insurers can identify the truly higher risk properties (down to specific building characteristics) and encourage mitigation, they might avoid blanket hikes on entire regions. There’s hope that tools like AI will improve loss prevention – for example, AI-powered image analysis to spot roof defects before they turn into claims. The rise of InsurTech and more granular data could also bring new capacity into the market, as specialized insurers emerge to cover niches that big carriers avoid. Over a five-year horizon, these innovations could help moderate insurance costs for those who invest in resilience and accurate valuation – essentially rewarding the prepared.

On the flip side, some factors could drive further increases. One is the continued effect of “social inflation,” i.e., rising legal costs and liability claims. While property insurance is mostly about physical damage, many policies also cover things like business interruption and certain liability scenarios (for instance, if a building’s condition causes injury). The multi-year trend of larger lawsuit judgments (e.g., huge payouts for negligence if a building collapse or fire injures people) weighs on insurers’ loss . If this persists, underwriters may price that into premiums or carve out more exclusions (which then force owners to buy separate liability coverage).

Another looming issue is geopolitical and macroeconomic risk. AM Best’s outlook for 2025 warned that high claims costs and the multi-year impact of social inflation and geopolitical risks could pose threats to the commercial lines sector. Geopolitical risk might include something like terrorism (which since 9/11 is usually a separate insurance line with government backstop, but one never knows if a spate of terrorism could bleed into general property markets) or even war and unrest that disrupt insurance markets globally. The mention of geopolitical factors is a reminder that unexpected shocks – a financial crisis, a pandemic (beyond what was seen in COVID), etc. – can either alleviate or exacerbate insurance trends. For instance, a deep recession might reduce construction costs and claims frequency (fewer new buildings, less activity), potentially softening premiums; conversely, it might also hurt insurer investment portfolios, leading them to raise rates to maintain profit.

Most likely, the next five years will see continued upward drift in insurance costs, but at a gentler gradient than the past five. Property owners might not face 30-40% annual jumps again unless a record disaster hits, but they should brace for, say, 5-10% increases each year on average – still above general inflation. By 2030, the cumulative effect could be that insurance expenses are, say, 50-80% higher than today for many properties, as the Deloitte projection suggests. This assumes no radical changes in how risks are managed. One wild card that could alter the trajectory: if there is a broad-based effort in the real estate and insurance industries to promote mitigation and smarter building, we could see a flattening or differentiation. Properties built or retrofitted to high resilience standards might enjoy flat or even declining insurance costs, while those that remain vulnerable could pay steep surcharges. Already, some insurers offer lower rates for fortified buildings (a program called FORTIFIED Home exists in some coastal states for houses – an analogous concept could expand to commercial).

In a way, the future of commercial property insurance rates is entwined with how society addresses climate change and resilience. The more we invest in adaptation – better infrastructure, stricter building codes for wind/fire/flood, relocation from the riskiest zones – the more we can tame the loss spiral that drives premiums. Conversely, if development continues heedless of risks and climate impacts worsen unabated, insurers will either charge dearly or withdraw, and the costs to property owners will climb accordingly. Regulators and insurance commissioners (like those in California and Florida) are increasingly aware of the need for solutions, whether that’s incentivizing mitigation or, if all else fails, expanding government-backed insurance mechanisms to ensure coverage availability.

For now, commercial real estate stakeholders are learning to navigate this high-cost environment. “It’s a disruption unfolding now,” the Coldwell Banker Commercial report declared, urging the industry to integrate insurance considerations into every facet of due diligence and asset management. The takeaway message is clear: insurance can no longer be taken for granted. The coming years will reward those who actively manage this risk – through smarter investment choices, robust risk reduction, and savvy insurance purchasing – and punish those who ignore it.

As of late 2025, the worst of the storm may be passing in terms of rate momentum, but the landscape it leaves behind is forever changed. Higher costs, more careful underwriting, and a focus on resilience are here to stay. Commercial property insurance, once a sleepy corner of the industry, is now a front-page story – one that will continue to evolve as the climate, the markets, and the real estate industry itself respond to a world of rising risks.

November 26, 2025 by a collective of authors at MMCG Invest, LLC, fesibility study consutants

Sources:

• Insurance Information Institute – Commercial Property: Trends and Insights, Dec. 2024

• National Association of Insurance Commissioners – U.S. P&C Industry Report First-Half 2024

• Deloitte Insights – Climate Change and Commercial Real Estate Insurance, 2024

• Coldwell Banker Commercial – Insurance Shockwaves: Rising Premiums Reshaping Deals, Sep. 2025

• Moody’s Analytics – 2023: Challenging Year for Insurance Expenses, Sep. 2024

• Marsh McLennan/Insurica – 2024 Property Insurance Outlook, Jun. 2024

• Reinsurance News – Triple-I: Signs of Growth Amid Challenges, Dec. 2024

• The Real Deal (Miami) – Florida CRE Faces Big Insurance Hikes, Mar. 2023

• Federal Reserve Bank of Minneapolis – Rising Property Insurance in Multifamily, Mar. 2025

• CRE Daily – Insurance Costs Delay Multifamily Deals, Oct. 2025

• Aon – Property Market Dynamics Report Q3 2024, Dec. 2024

• Triple-I Blog – 25-Quarter Streak and Market Outlook, Dec. 2024