Why Are Insurance Costs For Commercial Real Estate Rising During Hurricane Season?
For almost two years, commercial real estate has been dwindling due to post-pandemic vacancies and soaring loan obligations. As those dangers diminish, owners of commercial real estate such as strip malls, apartment complexes, and office skyscrapers confront an issue that may last for a considerable amount of time: insurance premiums that are skyrocketing.
Insurance costs for commercial real estate have been on the rise, particularly during hurricane season. Several factors contribute to this surge, making it increasingly expensive for property owners and businesses to protect their assets. From increasing natural disaster risks to a hardening insurance market, these rising costs are shaped by a combination of environmental and economic pressures.
Increased Frequency and Severity of Hurricanes
The increased frequency and strength of hurricanes are one of the main causes of the rise in insurance prices during hurricane season. Increased wind speeds, storm surges, and intense rainfall are all results of climate change-related storms that are more damaging and unpredictable. Because of the increased reimbursements for damage claims, insurers are forced to increase rates in order to offset these risks. Commercial real estate in coastal and hurricane-prone areas is getting more expensive to insure as more storms are predicted each year.
Greater Risk for High-Value Properties
Commercial real estate, especially large office buildings, retail centers, and industrial properties, represents a significant investment. These high-value properties are more expensive to repair or replace if damaged by a hurricane. Insurers take into account the scale and value of a commercial property, meaning the potential claims from a severe storm could be enormous. As the potential risk increases, so do the premiums, especially in high-risk areas near the coast or in zones with a history of hurricane activity.
Hardening Insurance Market
The commercial insurance market has been hardening over the past few years, with insurers becoming more selective about the risks they are willing to cover. This is due in part to the cumulative impact of large-scale natural disasters, not just hurricanes but also wildfires, floods, and other catastrophes. In a hard market, insurers tend to increase premiums, limit coverage options, and require higher deductibles, all of which contribute to the rise in costs for commercial real estate during hurricane season.
Limited Availability of Reinsurance
Reinsurance is the coverage that insurance companies purchase to protect themselves from large claims. However, reinsurance costs have also been rising, particularly for hurricane-prone regions. When reinsurers increase their rates, primary insurers must pass those costs on to their policyholders. This trickles down to higher premiums for commercial real estate owners, especially in regions vulnerable to hurricanes.
Conclusion
Rising insurance costs for commercial real estate during hurricane season can be attributed to more frequent and severe storms, the high value of properties at risk, a hardening insurance market, and increased reinsurance costs. As these factors continue to impact the industry, property owners may face even higher premiums in the future.