Building owners can consider several approaches to protect their investment and mitigate the rising costs of commercial property insurance.
First, you should consider what preventative measures you can take. This includes conducting regular risk assessments, but if you already have one, you can also conduct them more frequently to help inform decision-making and respond to an increase in weather-related events. Commercial property owners can also focus on increasing security and surveillance measures such as cameras, access controls, flood monitoring equipment, and fire prevention tools to better protect their assets.
Brokers and advisors can play a key role in helping owners predict and even reduce costs. Owners can work with their broker or advisor to discuss policy renewal options well ahead of the deadline to keep price expectations consistent going forward. Brokers and advisors can also help CRE owners find cost-saving opportunities and more competitive pricing, as many of them have negotiating power with insurance companies (if the insurance companies still supply the neighborhood). Brokers and advisors can also point owners to resiliency initiatives or discount programs that insurance companies may offer.
For some CRE owners, it may be worth considering self-insuring to gain more control over insurance costs and coverage options. By establishing a captive insurance company, CRE owners can increase their own buying power and gain direct access to reinsurance and alternative capital markets, which can reduce the impact of volatility, both in terms of price and availability, through traditional insurance channels. Greater access allows owners to make risk financing more stable over time and optimize risk retention based on market cycles.
Finally, location-independent owners and investors may consider relocating some or all of their properties. In some situations, relocation may reduce extreme weather risk or provide access to insurance companies that do not service certain areas of the United States. When making relocation decisions, owners and investors should ensure that they and their insurance companies are using up-to-date hazard risk maps. For example, historical wildfire risk maps are becoming outdated due to climate and environmental changes, and government agencies are increasingly relying on satellite imagery and AI technology to map risk zones more dynamically.10 Understanding current and future location risks is essential to making informed relocation decisions.
The link between climate change, more extreme weather events and rising commercial property insurance costs is likely to continue for the foreseeable future, but property owners have viable options to consider to stem the tide and ensure their buildings can withstand the weather and still generate revenue.