Using Tech to Head Off Insurance Costs

One section of Deloitte’s 2024 Financial Services Industry Predictions, focused on the impact climate change is having on commercial real estate insurance costs.

“Due to its location and topography, population growth and development in climate-vulnerable areas, and the growing impact of climate change, the United States leads the world in extreme weather catastrophes,” the firm wrote. That includes cold waves, heat waves, wildfires, floods, and superstorms.

The insurance industry is uniformly responding in the one way it can — by raising premiums. The Deloitte Center for Financial Services projected that average monthly insurance costs for a U.S. commercial building “could increase from US$2,726 in 2023 to US$4,890 in 2030, at an 8.7% compound annual growth rate.” The current average is already up from $1,558 in 2013.

That is on average. States that face the highest risks from weather would shift from current monthly per-building costs of $3,077 to an estimated $6,062, close to double, by 2030 through a 10.2% CAGR. For lower-risk states, the current $1,935 would rise a 7.9% CAGR to $3,299.

It’s not as though the signs haven’t been there. “Commercial buildings located in states with the 10 highest expected annual loss (EAL) totals according to Federal Emergency Management Agency (FEMA), based on their exposure to natural hazards, have seen a 31% increase in insurance costs year over year and 108% increases over levels from five years ago,” they wrote. “This compares to 25% and 96% increases, respectively, for states outside of the top 10.”

Insurers aren’t just worried about the future. They’re trying to catch up from increased losses over the recent past. Property premiums had lagged inflation for the eight quarters from 2021 Q1 to 2022 Q4. But the pace of damage had increased.

“In 2023, there were 28 separate billion-dollar extreme weather events with estimated recovery costs totaling US$92.9 billion, exceeding the records for both count and cost from 2020,” Deloitte wrote. That was up 56% from 2022 and 180% from a decade before. If things continue on this path, there could be 42 billion-dollar weather events annually by 2030.

One area where technology can help is in security and monitoring efforts. “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,” they wrote. The better the security, the greater the chance that owners can receive an alert and act faster, potentially heading off a claim or reducing the severity of one.

Tech can also give access to risk maps that might suggest other physical locations with lower insurance costs.