Yesterday, I had the pleasure of hosting Dr. Chris Pyke (GRESB), Chris Cayten, M. Arch, LEED AP (Code Green), and Duncan C. Ellis (Marsh) on my monthly sustainability and risk mitigation webinar where we focused on the ever-intensifying impact of storms, wildfires and natural disasters and how insurance is figuring into the picture (or not) for commercial real estate.
As weather related climate risks intensify, the panelists uniformly agreed that real estate and insurance industries are shifting from high-level risk awareness to tangible asset-level resilience and action. We spent the hour exploring how climate risk, insurance market trends, and financial resilience are reshaping the built environment.
Key Takeaways:
- The Climate Risk Landscape Is Evolving Rapidly, and the number of events and the impact of these weather-related events are increasing in number and severity.
- Natural disasters are increasing in frequency and cost, with the U.S. averaging 23 billion-dollar plus disasters per year in the last four years (compared to 9 events per year from 1980-2024).
- Canada’s insurance claims have surged 93% over the past decade, signaling market instability.
- Practitioners have moved from discussing rental premiums for having certain green features at their properties to focusing on Risk Mitigation and Efficiency (some would say they have returned to this place)
- Sustainability is no longer just about certifications; it’s about financial risk reduction and fiduciary responsibility in asset preservation.
- Building performance standards (BPS) are increasingly incorporating resilience and physical climate risk into their analysis of where to invest and where to hold vs. sell.
- Insurance Premiums Are Climbing—And Discounts Aren’t Guaranteed for building in resiliency features, but the lack of focus will likely make a property much less desirable to insure at all. Property insurance has leveled over the last few years despite the increase in number of losses and the severity of such losses; the casualty side of the business is driving cost at this point in the cycle.
- Many factors are driving higher property premiums—such as community risk, rebuilding costs, and interest rates—these factors are some of the features which insurance carriers review in pricing coverage are beyond the control of individual property owners.
- While resilience measures may not yield direct insurance discounts, they can help secure better access to coverage and slower premium hikes over time.
Insurance Market Challenges & Risk Differentiation:
Insurers are tightening terms, raising deductibles, and exiting high-risk markets like California and Florida due to regulatory constraints and continued extreme weather risks. Carriers have exited these markets on the residential front rather than the commercial front, but insurance costs in the commercial real estate markets have been priced to take into account property level risk and the insurance carriers’ appetite to take risk in particular markets given the past history with their clients’ losses.
Resilient properties in lower-risk areas may retain more value and command higher rents, thereby reinforcing the financial case for adaptation.
Modeling of these risks and Data Transparency Are Key to Risk Assessment at the property level as the Insurers rely on tools like RMS and AIR to help price and assess weather related risk, but inconsistencies in modeling approaches continue to create confusion for real estate owners. Better data alignment between insurers and property owners is critical to improving risk assessment and pricing. Simple things like making sure the insured data is accurate regarding sprinklering, the location of HVAC equipment, what type of resiliency measures have been enacted at the property are critical to making sure the carrier is pricing the applicable real risk into its premium quote.
What Real Estate Owners & Investors Should Do Next:
Understand the insurance models and data sources that underwriters use to assess risk. Implement resilience measures that demonstrate tangible risk reduction to insurers. Engage insurers early and improve transparency to ensure fairer risk assessments and pricing.
As climate-driven losses mount, risk mitigation is becoming a business necessity rather than an optional sustainability strategy. Those who adapt will not only protect asset value but also navigate insurance challenges more effectively in an increasingly volatile market.
Physical risk assessment and mitigation is part of a broader trend in sustainable real estate where down-side risk reduction is replacing the ephemeral “green premium”.
Green Spouts: Undeniable risks such as the increase in severity of weather-related events (e.g., flooding, hurricanes, wildfires) and similar climate events and upcoming Building Performance mandates in various cities and states are motivating owners of all sizes to build and operate buildings more responsibly, regardless of their ideology or opinion of “sustainability”. Irrespective of being blue or red, owners are focusing on risk mitigation measures that make financial sense, including physical risk mitigation.
Duane Morris has an active Sustainability and Risk Mitigation Team to help organizations and individuals plan, respond to, and execute on your Sustainability and Risk Mitigation planning and initiatives. For more information, please contact Brad A. Molotsky, David Amerikaner, Sheila Rafferty-Wiggins, Jeff Hamera, Jolie-Anne Ansley, Robert Montejo, or the attorney in the firm with whom you are regularly in contact.