- A new report quantifies what most commercial real estate owners and operators already know: The cost of insurance is skyrocketing.
- The report found that property coverage has become much more expensive in recent years, leading policyholders to raise deductibles and insurers to limit coverage amounts and include new policy limitations.
- Respondents said their property insurance costs have gone up an average of 26% in the past year, with some reporting increases as high as 120% year over year.
The study also found in the past three years:
- 61 percent of the respondents had to increase their deductibles to maintain affordability.
- 57 percent of the respondents indicated that their insurance carriers included new policy limitations to reduce their exposure.
- 34 percent reported that their insurance carriers limited or reduced coverage amounts.
These trends have hit owners, operators and developers of rental housing hard during a time of many other economic headwinds, such as high interest rates and increasing construction costs, according to the report, which was based on a February survey of 160 apartment firms of varying portfolio sizes and property types across the country.
A recent Multifamily Dive investigation found that the causes of the increases are many, including the increased frequency and severity of weather disasters across the country. In recent years, the report noted, insurance carriers have seen huge claim payouts from natural events, including the February 2021 Texas freeze event, Hurricane Ida’s impact on the Northeast in September 2021 and Hurricane Ian in September.
These natural disasters, combined with the rising costs of construction materials and labor and COVID-19-induced supply chain issues, has meant increased claim payouts beyond what underwriters expected or collected premiums for, the report said.
Other factors such as population growth in high-risk areas and the nuances of the insurance market all play a role as well.
“It is hitting everyone and it’s not just climate-related,” Danielle Lombardo, chair of the Global Real Estate Practice at Kansas City, Missouri–based insurance brokerage firm Lockton, told Multifamily Dive.
Matthew A. Rieger, president and CEO of Coconut Grove, Florida–based Housing Trust Group, the largest affordable developer in Florida, told Multifamily Dive that he was instructed to budget for 200% to 300% increases. “We are seeing radical, outrageous increases in property insurance and general liability insurance for our product,” he said.
The NMHC called on lawmakers to look for ways to incentivize a more robust insurance and reinsurance market for multifamily housing so that “affordable, attainable and quality lines of coverage are available to meet property needs and mitigate risk,” the report said.
The reform and long-term reauthorization of the National Flood Insurance Program is one step that could help, NMHC President Sharon Wilson Geno said in the report.
“Ensuring that federal programs and funding are designed to help mitigate the risks rental housing providers face will also go a long way toward reducing insurance costs and enhancing housing affordability,” she said.