Insurance Premiums Are Rising: What This Means for Property Managers

Nov 30, 2022

As a property manager, you’re juggling many responsibilities for the upkeep and operation of your building. While you know to prepare for unexpected costs from emergency repairs or needed improvements, rising real estate insurance premiums may not be at the forefront of your mind.

Commercial property insurance costs increased an average of 7.1% across the industry in the second quarter of 2022. This marks the 19th straight quarter of rising insurance premiums, meaning you can expect your premiums to go up if they haven’t already. With this trend showing no signs of reversing soon, you may face higher premiums for quite some time.

Why are insurance premiums rising? Many factors are contributing to the increase, including changes in the economy that are out of your control. However, property managers can take steps to lessen the rising premiums' impact. Discover what’s causing rates to rise and how it may affect your property.

What is Real Estate Insurance?

Property managers of condominiums, co-ops, HOAs, and multi-family units rely on real estate insurance to protect their property and assets from damage, theft, and third-party claims. What is real estate insurance, and what makes it different from other types of property insurance?

Real estate insurance is a type of commercial property insurance that bundles liability coverage with land, building, and property protection to cover all aspects of the property. These policies typically cover shared common spaces like lobbies, sidewalks, and grounds, the exterior parts of the building like the roof, and may include some interior infrastructure. This type of insurance is necessary for all communities, which is why rising premiums cause concern.

Why Are Insurance Premiums Rising?

Commercial property insurance costs are increasing due to multiple factors beyond the control of property managers. Changes in the economy, the insurance market, and ongoing environmental events have contributed to the rise in rates.

Natural Disasters are Driving Up Premiums

More extreme weather events like fires, hurricanes, tornadoes, and floods are also to blame for rising premiums. Not only are the total number of claims going up, but the dollar amount of claims is also increasing. Estimated insured property losses in 2021 ranged from $100 billion to $145 billion, the second-highest loss since 2017.

When insurance carriers face significant losses from catastrophic damages, they are forced to raise premiums to stay solvent and spread the cost and risk out amongst policyholders.

Economic and Labor Challenges

Inflation is pushing up property value and increasing the cost of building materials, which often gets pushed onto the insurance carrier through claims. Insurance companies are responding to inflation by raising their premiums to mitigate future losses.

Labor shortages are also affecting many industries, including property maintenance and staff operations. This, paired with disruptions in the supply chain and increased demand for construction materials over the last several years has only increased the cost of preventative maintenance and repairs. These challenges add to property management expenses and insurance costs.

Insurance Industry Currently in a Hard Market

Economic downturns and lower interest rates have made it more difficult for insurance companies to make money through their investments, triggering a hard market. Carriers respond to this market by increasing premiums and reducing competition.

How rising insurance premiums could impact your property

Rising premiums have an impact beyond what you pay for real estate insurance. Common effects include:

Higher, less predictable expenses

Your ability to develop a budget or plan for future expenses becomes more difficult with premiums continually rising. You may have to forgo discretionary expenses, like planned renovations or new amenities, or consider raising HOA fees to cover the additional costs.

Drop in property income

Increased insurance premiums affect your bottom line, particularly if you rely on rental income. Rising premiums can decrease your net operating income (NOI), especially if rental income remains unchanged. This can lead to a drop in appraisal or valuation and impact your ability to refinance your property.

Additional work to mitigate insurance costs

Insurance carriers evaluate the inherent risks associated with your property when determining your premium. You may be able to bring down your commercial property insurance costs by implementing actions that reduce your overall risk.

For example, consider performing routine inspections of your building, completing preventative maintenance to diminish hazards, and creating a risk management strategy. Keeping your property well-maintained and secure may help bring down your risk and insurance costs.

Minimize the impact of rising rates with BuildingLink

If you’re dealing with rising insurance premiums, consider the innovative solutions BuildingLink offers. Our property management software systems help you streamline and organize maintenance requests and work orders to stay on top of problems and reduce risk.

Schedule your BuildingLink demo today to learn how our services can meet your risk management needs, which may help minimize commercial property insurance costs and lessen the impact of higher insurance premiums.


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