Rising Insurance Premiums Adding Pressure on Commercial Real Estate Sector Attributed to More Than Climate Change
From atmospheric rivers to severe heatwaves to rampant wildfires, the repercussions of climate change continue to have a resounding impact on the U.S. commercial real estate sector – which as a result has been especially hard hit by rising insurance premiums.
From 1980 to August of this year there have been 395 confirmed weather/climate disaster events in the United States with losses exceeding $1 billion each, according to the National Centers for Environmental Information.
Specific examples include Hurricane Beryl which pummeled Texas in July of this year, causing widespread wind damage with estimated costs ranging from $2 billion to over $6 billion; Hurricane Ian in 2022, causing over $50 billion in property damage to Florida, and the 2018 Camp and Woosley fires in California, triggered by extreme heat and drought – causing over $14 billion in property damage. Insured losses almost quadrupled from $25 billion in 2019 to $99 billion in 2022. The repercussions of more recent events such as Hurricanes Helene and Milton still remain to be seen.
The increased frequency of these events, exacerbated by increasing construction costs and population growth in high-risk areas, are causing insurance premiums to rise. According to the Federal Emergency Management Agency (FEMA), commercial buildings located in states with the 10 highest expected annual loss totals based on their exposure to natural hazards have seen a 31% increase in insurance costs year over year and 108% increases over levels from five years ago.
Our associate Ulrick Matsunaga recently examined how climate change is driving escalating insurance costs, and also addressed what other factors are triggering soaring premiums in an article written for Law360. According to Matsunaga, increasing costs are placing considerable strain on property owners, investors and developers – leading to difficult decisions regarding operating budgets, financing and investment strategies.
The full article can be read in Law360 here (subscription only).