Homeowners across the United States are experiencing difficulties with obtaining insurance policies or keeping up with rising premium costs as extreme weather events alter the shape of the market. But business owners, landlords, and property developers are starting to feel the strain, too.
What's happening?
As The New York Times reported, insurance premiums are rising for homeowners as the threat of extreme weather events including deadly storms, wildfires, and flooding — all made more likely, stronger, and longer lasting because of human-caused global heating — increases, but commercial building owners are also in increasingly difficult positions.
While it's not easy to quantify how many buildings have gone into foreclosure because of this issue, those in the industry attest that deals are falling apart with insurance costs rising to unreasonable levels.
According to insurance brokerage Marsh McLennan, as the Times detailed, insurance costs for commercial properties in storm-vulnerable areas such as Florida and California have risen as much as 50%.
After Hurricane Helene, which devastated parts of Tennessee, the Carolinas, Georgia, and Florida, reinsurance broker Gallagher Re estimated that some $35 billion in economic losses were incurred. With such a high financial toll, insurers are becoming less and less keen to offer coverage — or else upping premiums to cover their backs.
High insurance costs, in addition to increases in expenses associated with building materials and labor, are also discouraging developers and investors from building new properties.
"This current interest-rate environment has exposed the people that know what they're doing and those that don't," Fundamental Advisors head of asset management Mario Kiifarski told the Times.
Why are rising insurance costs concerning?
Global temperatures are increasing, and looking at year-on-year trends, there is no sign of this slowing down. With that in mind, we can expect extreme weather to pose a greater threat into the foreseeable future, further encouraging insurers to pull coverage, raise premiums, or not offer protection at all.
Rising insurance costs mean businesses that use commercial properties and offer goods and services might be forced to leave premises, close entirely — possibly because of or resulting in foreclosure — or increase the prices of what they offer. This could have ripple effects throughout the market, and consumers at the end of the chain will feel it hurt their wallets.
For landlords, including those who own residential property, high insurance premiums might lead to rent increases, which can impact businesses and domestic tenants who might already be struggling in a tough financial environment.
On top of this, the rise in remote work is discouraging many businesses from moving back to the office — with the COVID-19 pandemic proving that homeworking is a viable way to run an organization. That could lead to more and more commercial buildings being left empty because of an unwillingness by businesses to invest in or rent property since they know work can be done online much cheaper.
That will hit investors and property owners hard or else stop the construction of commercial property during development — meaning space is taken up in communities with half-completed projects, and the energy and resources used in these developments will go to waste. Ironically, the planet-warming pollution from the construction of these incomplete buildings would also encourage thermometers to creep upward.
What can be done about rising insurance costs?
Businesses and homeowners should not rely on previous insurers to offer the best deal, and shopping around for coverage might help to lower costs.
But, if we really want to see the cost of insurance fall — and ensure a greener, safer world for all in the process — it's essential that we reduce our production of planet-warming gases.
Businesses are beginning to understand that relying on sustainable, renewable energy and reducing waste is not just good for the planet but also good for operating costs. The rise of insurance premiums for commercial property because of extreme heat has underscored that point.
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