Building owners can explore several approaches to help protect their investments and help mitigate rising commercial property insurance costs.
First, they should explore prevention measures they can take themselves. These include conducting regular risk assessments—or, for those who already do this, they could do these assessments more frequently to help inform decision-making and keep pace with the rise in weather-related events. Commercial real estate owners can also focus on enhancing security and monitoring measures, such as cameras, access control, flood monitors, and fire prevention tools, to better protect their properties.
Brokers and advisors can play a key role in helping owners anticipate and even reduce costs. Owners can work with their broker or advisor to discuss policy renewal options well in advance of deadlines to help level-set pricing expectations for the road ahead. Brokers and advisers can also help CRE owners find cost savings opportunities or more competitive pricing since many have negotiating power with insurers—assuming insurers are still supplying the immediate vicinity. Brokers and advisors can also avail owners of any resiliency efforts and discount programs insurers may offer.
For some CRE owners, self-insurance may be worth exploring to have greater control of their insurance costs and coverage options. By setting up a captive insurance company, CRE owners can improve their own purchasing power and gain direct access to the reinsurance and alternative capital markets, which could reduce the impact of volatility from both a price and availability perspective through traditional insurance channels. Having greater access can help owners better stabilize their risk financing over time and optimize risk retention based on market cycles.
Finally, location-agnostic owners and investors can consider relocating some or all of their properties. In some circumstances, relocating can help reduce risk exposure to extreme weather or gain access to insurers who no longer service certain regions in the United States. When making relocation decisions, owners and investors should ensure they or their insurer are using the most updated peril risk maps. For example, historical wildfire risk maps are becoming obsolete due to changes in climate and environment, and government agencies are increasingly relying on satellite imaging and AI technology to map risk zones more dynamically.10 Understanding the current and future location risks can be vital to making informed relocation decisions.
The links between climate change, the proliferation of extreme weather, and the rising costs to insure commercial real estate will likely remain for the foreseeable future. But owners have viable options to consider in helping to stem the tide and ensure that their buildings can withstand the elements and help keep their bottom lines afloat.
