Climate-Risk States Face Doubling Insurance Costs

Skyrocketing property insurance premiums for apartment operators are being called “our greatest noncontrollable expense” by some owners.

Premiums are rising by 30 percent in many markets, by more than 50 percent in others, and even doubling elsewhere. Additionally, some renewing policies offer half the coverage for that same full price.

Yardi reported that states with increasing climate-related risk, such as Florida and Texas, see their costs rising upwards of 50% and starting to threaten new development and property sales.

“Weather-related payouts have left some insurers insolvent, while others are avoiding high-risk states. The maneuvering translates into higher rates and less coverage for property owners,” Yardi Matrix’s Paul Fiorilla, director of research, writes in the report.

Danielle Lombardo, the chair of Lockton Global Real Estate, a New York-based advisory firm, said in the report that this “has caused a bifurcated market between catastrophe-exposed and non-catastrophe-exposed business, with the highest double-digit increases in properties that have negative risk attributes, such as older frames, a challenged loss history or undervalued assets.”

“Reinsurers are running away from Florida,” she said. “Something has to be done differently.”

Yardi reported that many reinsurance companies, which property insurers use to move portions of risk off their own balance sheets, are quitting high-risk states, and those that stay are raising rates by 45% to 100%, Lombardo said.

Soaring Costs, Ratings, Premiums

Investors Management Group (IMG) also has a property in the Southwest that has never had an issue with wildfires. Insurance carriers have been checking wildfire ratings in California for years now, Marc Gordon, its principal & CFO said.

For the first time, IMG’s wildfire rating has increased, resulting in many insurance companies declining coverage.

Max Sharkansky, Managing Partner at Trion Properties, said that costs have risen across the board, and operating properties primarily in the Southeast, West Coast, and Denver have had premiums hiked by 25 percent to 35 percent.

For properties located in catastrophic zones such as Miami, Savannah, and Charleston, costs have nearly doubled in some cases.

For example, a property in Charleston, S.C., was operating with approximately a $300,000 insurance policy in 2021. In 2022, that same property was hit with a premium of $600,000 for the same insurance policy.

“As an experienced multifamily owner/operator, we were well-prepared to confront these cost adjustments despite their unexpected nature,” Sharkansky said. “We expect these cost increases to be reflected as properties near immediate renewal come due.”