The commercial real estate sector is on a significant upward trajectory, projected to hit $155 trillion by 2029 with a 3.3% annual growth rate. But with growth comes risk. Extreme weather, rising insurance costs and evolving cyber threats are making it more challenging to protect your investments. Here’s what you need to know — and how to stay ahead.
Key Insurance Challenges in Commercial Real Estate
Climate Exposures: Rising Risks & Costs
Extreme weather is rapidly driving up insurance costs and making properties increasingly difficult to insure. In 2024 alone, the U.S. experienced 27 separate billion-dollar weather disasters, causing significant property damage and sinking real estate values.
Coastal properties are particularly vulnerable, with rising sea levels, saltwater corrosion and storm surges posing major financial and safety threats. Additionally, flooding, standing water and excess moisture lead to mold growth and structural damage — reducing property appeal and value and increasing maintenance costs.
Climate Risk Management Strategies:
- Conduct risk assessments to identify and address disaster vulnerabilities.
- Invest in storm-resistant materials, flood barriers and reinforced roofing.
- Take advantage of government incentives for climate adaptation.
- Monitor climate projections and adjust property portfolios accordingly.
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Technology & Cybersecurity: Balancing Innovation With Risk
Artificial intelligence (AI) and the Internet of Things (IoT) are transforming the real estate sector. Property managers are streamlining operations with automated lease reviews, tenant screenings and maintenance scheduling. IoT enables real-time monitoring of building systems, allowing for early detection of issues(e.g., water leaks) to prevent costly damage.
A downside is that cloud-based systems and smart buildings are prime targets for cyber criminals, with real estate ransomware attacks averaging $353,000 per incident. However, with strong cybersecurity measures, your business can decrease its exposure to data breaches, preventing costly downtime and reputational damage.
Technology & Cyber Risk Mitigation Strategies:
- Evaluate cybersecurity risks before adopting AI or IoT solutions.
- Train staff on cybersecurity best practices and phishing threats.
- Implement network encryption, multifactor authentication (MFA) and endpoint detection systems.
- Develop and thoroughly test a cyber incident response plan.
Insurance Market Volatility: Navigating Rising Costs
Commercial real estate insurance owners continue to face rising insurance premiums. General liability rates have increased nearly 5% for several quarters, while property insurance costs surged by 20% in 2023. As extreme weather and liability claims grow, insurers are tightening policies and withdrawing from high-risk markets.
Managing a Challenging Market:
- Strengthen buildings with weatherproofing measures like reinforced roofing, flood barriers and storm-resistant windows.
- Enhance security with surveillance systems, access control and comprehensive fire suppression systems.
- Implement proactive maintenance to prevent costly claims from deferred upkeep.
- Work with a real estate insurance advisor to customize coverage for your portfolio.
- Explore alternative risk options like captives or parametric insurance for greater flexibility.
Economic & Social Shifts: Adapting to Rising Costs & Liabilities
Commercial real estate is facing growing financial and legal pressures that impact insurance costs and risk management. Inflation, fueled by supply chain disruptions and market volatility, continues to drive up construction costs and property values — leading to higher insurance premiums. At the same time, social inflation, marked by rising litigation costs and larger liability settlements, is increasing insurers’ risk, ultimately pushing rates higher for policyholders.
Strategies to Manage Economic & Social Risks:
- Regularly assess coverage to ensure it aligns with rising property values and rebuilding costs.
- Control expenses with bulk material purchases and fixed-rate vendor contracts.
- Strengthen liability protection by reviewing policy limits and adding umbrella or excess liability coverage.
- Monitor legal and regulatory changes to anticipate shifts in litigation risks.
- Work with an insurance advisor to explore cost-effective risk transfer solutions.
We’re Here to Help Secure Your Investments
As real estate risks evolve, being proactive is key to protecting your profitability and fueling long-term growth. Connect with a member of our team for tailored risk management solutions and coverage options to safeguard your assets and ensure sustainable success.
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