In commercial real estate, property insurance- which was once considered just a line item on the balance sheet, has now become a major deal breaker. Landlords, lenders, and investors are grappling with an insurance crisis alike and that is reshaping valuations, financing, including the ability to close deals.

Premiums are skyrocketing, coverage is shrinking, and in some regions, insurers are withdrawing altogether. For CRE owners and lenders, this is more than about higher costs, it is also about whether properties can remain financeable or even insurable at all.

Why Are Insurance Costs Soaring?

Insurance has changed from a back-office expense to a central investment variable, thus impacting property values, cap rates, and financing decisions. The reasons for soaring insurance costs are:

1. Natural Disasters: The frequent wildfires, floods, and severe storms are fueling record pay-outs for insurers. Reinsurers (who back up primary carriers) have raised their rates, this has pushed the costs down the chain to property owners.
2. Insurers Exiting Risky Markets: In high-risk states like California, Florida, and Louisiana, many insurers are cutting back or leaving entirely. That leaves commercial owners dependent on state “last resort” plans that come with steeper premiums and fewer protections.
3. Tougher Underwriting Rules: Older buildings, coastal properties, and assets with prior claims now face higher deductibles, new exclusions, and stricter terms. Even clean portfolios are seeing 5–10% annual increases in premiums.

The Impact on CRE Economics:

1. NOI Compression: When premiums double, net operating income (NOI) takes a hit, and property values drop. For example, a Florida multifamily property might see insurance costs jump from $700 to $1,500 per unit annually, wiping millions off of its valuation.
2. Refinancing Roadblocks: Higher premiums reduce the Debt Service Coverage Ratio (DSCR). For owners already squeezed by rising interest rates, this makes refinancing much more difficult.
3. Deal Certainty at Risk: Buyers in high-risk markets are walking away when they can’t secure affordable coverage. Sellers relying on outdated premium assumptions are seeing wider bid-ask spreads.
4. Lender Pressure: If coverage lapses, lenders often impose force-placed insurance, which is costlier and provides less protection. This adds stress to borrower-lender relationships and increases default risks.

Real-World Examples:

1. California’s Wildfire Fallout: California’s insurance market has been in crisis for years as companies struggle with massive wildfire claims. Some insurers have pulled out of the state, forcing many property owners onto the California FAIR Plan, the state’s “insurance of last resort.” Since September 2023, FAIR Plan policies have nearly doubled, rising from 330,275 to 610,179 by June 2025. (SF Gate)
2. Florida’s Condo and Association Crisis: In Florida, Hurricane Ian and new safety rules after the Surfside collapse have caused insurance premiums for many condo associations to double or more. Some associations now charge special fees to owners, while others cut coverage limits. This is lowering property values and making sales harder.
3. Credit Market Concerns: In the CMBS and CRE CLO markets, analysts say rising insurance costs are cutting into property-level cash flows, especially for coastal multifamily and hospitality assets. Many loans are now close to covenant breaches, putting both borrowers and lenders at risk.

How Can Owners and Lenders Navigate This?

1. Budget Realistically: Plan for insurance premiums to rise every year, not just stay flat. Test cash flows for possible 10–20% jumps.
2. Invest in Resilience: Insurance carriers often give better terms when properties are protected. Upgrades like roof improvements, wildfire buffers, flood barriers, and modernized systems can help reduce costs.
3. Explore Alternatives: Options like parametric insurance (which pays out based on wind speed, quake intensity, etc.), deductible buy-downs, and layered programs are becoming popular to spread risk.
4. Negotiate Loan Covenants: Work with lenders to make sure insurance requirements are realistic. Otherwise, you may face forced coverage at very high costs.
5. Check Insurance Early: During acquisitions, get insurance quotes early in the process. Treat insurance as seriously as rent rolls or environmental reports.

The current U.S. insurance market is showing more stability compared to the extreme spikes of 2023–2024. But stability doesn’t mean prices will drop. Premiums are likely to stay high, with bigger deductibles and less coverage than before.

Today, insurance is a deal driver, poised to be just as important as interest rates and property taxes. CRE owners and lenders who plan ahead, invest in resilience, and stay flexible will be better prepared for this “silent crisis” reshaping commercial real estate.

Our expert underwriting team helps commercial property owners and lenders assess risk and structure coverage. Contact us at info@therealval.com to ensure your assets are completely protected.