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This report outlines 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 disasters. Recent years have seen insurance costs rise due to factors like inflation, the increasing frequency and scale of natural disasters, reinsurance market liquidity issues, and regulatory constraints. As insurers raise premiums, modify terms and conditions, enact stricter underwriting protocols, impose higher deductibles, and reduce coverage, the real estate industry is challenged to secure adequate coverage that satisfies lender requirements. Further, property owners are finding their net operating incomes reduced as insurance costs increase and – in some cases – are seeing transactions falter or valuations decline.

While the insurance market may shift into a period of increased competition should additional capital enter the marketplace, the business practices insurers and reinsurers have embraced are unlikely to disappear. Rates may decrease, but higher deductibles, lower coverage limits, and efforts to collect adequate premiums are projected to remain . Savvy investors will need to not only identify creative coverage opportunities but also manage physical climate risk strategically to build portfolios that can attract affordable insurance policies and maintain profitability. To aid investors, this report details:

1. How the higher frequency of weather-related claims, expensive and scarce reinsurance, persistent inflation, and regulatory restrictions are driving up property insurance prices and the effect of increasing costs on CRE owners;
2. Strategies for securing affordable insurance coverage, such as opting for higher deductibles or aggregate deductibles, employing self-insurance, self-insured retentions, or captives, and leveraging parametric and/or excess and surplus line coverage;
3. Investment considerations, like portfolio size and geographic diversity, asset and market exposure to physical climate risk, asset and construction type, or the presence of risk reduction strategies, that may make a building or portfolio more attractive to insurers;
4. Emerging trends and insurance impacts that could reshape markets; including the higher frequency and severity of secondary perils, the possibility of insurance-driven migration, the growing insurance protection gap, and the viability of government-backed insurance programs.