Costly reinsurance, inflation, tough regulations, and increasing weather-related claims are driving up property insurance prices—and in turn, that is impacting commercial real estate returns, valuations, and transactions, a new report shows.
The Urban Land Institute and real estate investment management firm Heitman this week put out a report Insurance on the Rise: Climate Risk and Real Estate Investment Decisions.
The report explores “the critical intersection of insurance, physical climate risk, and property coverage in the global commercial real estate sector, examining the challenges arising from rapid growth in the number and intensity of natural catastrophes,” and offers tips to manage rising costs that pairs creative insurance solutions with “a risk-aware investment strategy.”
It offers strategies for navigating rising property insurance costs due to increased climate risks, advising investors to identify creative coverage opportunities and manage physical climate risk strategically to build portfolios that can attract affordable insurance policies.
It suggests that property and CRE portfolio managers seek creative insurance solutions that include:
- Stitching together coverage from multiple carriers, opting for higher deductibles or aggregate deductibles, self-insuring, self-insured retentions, or captives, and leveraging parametric or excess and surplus line coverage.
- Investment strategies with an eye on portfolio size and geographic diversity, asset and market exposure to physical climate risk, asset and construction type, and asset scale resilience measures that build a strategic portfolio construction to better navigate the insurance marketplace.
NFL Stadiums and Climate Change
A new report estimates climate threats could cost NFL stadiums up to $11 billion in cumulative losses by 2050.
The report from Climate X, a climate risk analysis firm, evaluates the vulnerability of the 30 NFL stadiums to climate hazards like flooding, wildfires and storm surge.
It uses as a basis for its estimates a high-carbon emissions scenario continuing to push up global warming.
Stadiums are ranked by a “total loss percentage.” The percentage compares projected climate-related damages to a stadium’s replacement value. For example, a stadium worth $1 billion with a total loss percentage of 1.5% per year is projected to experience damages of roughly $400 million by 2025.
A few stadiums in the reoprt with large potential losses include:
- MetLife Stadium in New Jersey is projected to incur the highest total percentage loss of 184% with cumulative damages exceeding $5.6 billion by 2050 due to its low elevation and exposure to surface flooding and storm surges.
- SoFi Stadium in California is expected to suffer a cumulative loss percentage of 69%, with losses of $4.38 billion due to increased surface flooding risks in an urban coastal environment.
- State Farm Stadium in Arizona is estimated to experience a 39% total loss, with $965 million in cumulative damages due to increased flooding risks in a high heat, arid climate.
Less-Than Record Heat
Everyone pays attention when a record is broken, such as when a year is declared the “hottest year on record,” which seems to have happened in several recent years.
But near-record heat, it seems, is something people should be noticing more.
Sustained bouts of below-record heat have health and economic impacts, but researchers say the effects of chronic (but not record-breaking) heat are still under-studied, according to a Bloomberg article on Insurance Journal this week.
The article calls out Phoenix, which has broken numerous records. But it’s also the days below those records, which have been numerous, that should be worrisome: 92 days in Phoenix this year were hotter than 95F but didn’t breach 110F.
Tampa, Florida, has had 132 days this year of 90F or higher, and Raleigh, North Carolina had 111 days above 85F.
“Chronic heat doesn’t get the attention it needs,” Matt Brearley, an expert in heat physiology, told Bloomberg. “It’s not as sexy. It doesn’t get headlines.”
The chronic heat has broad implications, including for workers’ compensation.
Brenda Jacklitsch, a scientist at the National Institute for Occupational Safety and Health, warned that workers need time to acclimatize to hot conditions, whether they’re new on the job or returning vacation somewhere cooler. Failure to let people adjust to higher temperatures when starting a job or returning to one may be the leading factor in heat-related workplace deaths, according to the article.
Coastal Erosion
Coastal erosion is threatening to destroy homes on North Carolina’s barrier islands, and climate change is speeding up to process, according to a CBS News report.
The Atlantic Ocean has destroyed 10 homes on Hatteras Island in the last four years, and many more are being threatened, according to the report.
Local authorities are working to mitigate the problem and shore up homes and surrounding areas for what could be a coming onslaught.
“Large dunes, houses, the infrastructure — that stops the transport of sand across these barrier islands, which leads to a more vulnerable barrier island,” stated Reide Corbett, executive director of Coastal Studies Institute, which works with the community to find ways to adapt.
One way they are trying to protect homes is rebuilding the beach by pumping sand out of the ocean onto the shore, which can cost up to $25 million. With rising sea levels and more intense storms driven by climate change, the new sand that used to last five to seven years is being washed away in less than two years, according to the CBS report.
Past columns:
Topics
Trends
Pricing Trends
Interested in Pricing Trends?
Get automatic alerts for this topic.
