Owners-operators are impacted during different segments of the insuring process, resulting in solutions to combat risks and rising costs.
The rising costs of property insurance that have been rocking the multifamily housing industry may be leveling off as owners-operators reckon with the effects of natural disasters and how they are impacting day-to-day operations.
Rising property insurance premiums are an old story in the world of multifamily, but some owners-operators say the pressure cooker may be losing some steam. “Upon our March 1 annual renewal, CAPREIT’s insurance rates across our portfolio, which is located in the Mid-Atlantic, Southeast and Midwest regions, decreased, albeit moderately,” said Andrew Kadish, CEO of North Bethesda, Md.-based CAPREIT.
“Considering the extraordinary increases levied across the entire industry the past few years, we expect to see a gradual decline in all regions in the near future. That being said, everyone in the industry should be crossing their fingers that the hurricane season does not hit too hard in 2025.”
Hurricanes, tornadoes and floods play the role of apex predator in the commercial real estate industry and get most of the blame for rising insurance costs. But even in the mostly insulated upper Midwest, the side effects of extreme weather are still causing financial headaches.
Survey Says…
In March, the Federal Reserve Bank of Minneapolis released results from a survey it conducted that included responses from 35 multifamily owners-operators who oversee nearly 45,000 units in Minnesota, Montana, North Dakota and South Dakota.
One of the respondents summed up what the entire industry has been dealing with since the pandemic: “We estimate that over 50% of our overall operating expense inflation since 2020 can be explained by property insurance premium increases.”
Survey results indicate that the insurers typically tie premium increases to weather risk, claims histories and buildings’ physical characteristics, which the respondent found, “unsatisfying.” One of the respondents reported filing no insurance claims but still experienced a 200% jump in premium costs.
Mixed Results
Not everybody is having the same experience, including the team at Hamilton Zanze, based in San Francisco and active in 28 markets. Most of their units are in the Western, Southwestern and Eastern U.S.
“After seven years of increasing premiums, the market finally shifted, resulting in a significant decrease in property insurance premiums in 2025,” said John Gilmore, Managing Director of Risk and Project Management at Hamilton Zanze. “Unless there are substantial catastrophic events that impact the insurance markets this year, I anticipate that premiums will continue to decrease.”
Gilmore points out that insurance rates are cyclical, and the pendulum may finally be swinging back the other way. Firms with properties in different geographic regions are seeing uneven results, but financial improvements in the insurance industry in general may be trickling down to price drops.
“Insurers have been able to stabilize, at least in certain regions, through replenishment of reserves and spreading risk through reinsurance efforts,” said Scott Selm, VP, Asset Management and Property Accounting for The Annex Group. The Annex Group properties stretch from the Pacific Northwest to North Carolina.
“As a result, we anticipate an opportunity for insurance premiums to decline for companies with minimal to no loss history potentially from anywhere between 10% to 30%,” he said. “This will be very dependent upon company risk level and not in locations prone to severe weather events.”
Possible Solutions
The alternative to dealing with the financial exposure caused by an overstretched network of insurers could include systemic reform. “To mitigate the rising insurance rates, we need a multifaceted approach that includes increased investment in disaster resilience and infrastructure, enhanced risk assessments and possibly regulatory reforms that allow for more flexibility in underwriting,” said Selm. “Continued development of innovative products tailored to high-risk areas could also play a crucial role.”
Gilmore said the government needs to be more involved with what kinds of properties can be built due to specific risks. “Government officials and planners should apply greater restrictions on new developments in areas prone to natural disasters like floods, earthquakes, wildfires, tornadoes and hurricanes,” he said.
He would also like to see less governmental interference within the insurance economic ecosystem. “Maintaining an open insurance market with minimal government intervention would encourage greater competition and, over time, help create more options and stabilize pricing,” said Gilmore.
Kadish falls back on the time-tested notion of increasing competition among the insurers. “Encouraging more carriers to enter the multifamily market through reinsurance, state backstops, tax incentives, would lead to lower rates. Tort reform would provide comfort to defray spurious claims and ultimately reduce general liability rates.”
Scott Kurzban, COO of Los Angeles-based Universe Holdings, would love to see some changes to the laws. “Either insurance companies more aggressively fight frivolous cases, which is unlikely in places like Los Angeles due to the reality of runaway jury verdicts and high court costs, or we work to reform the system—and that is a very tough task,” he said. “I am not optimistic.”
Special Situations
As getting and keeping a building covered becomes more problematic, unorthodox solutions have popped up including using “non-admitted” insurers, which are based out of state and, therefore, don’t have to comply with local regulations.
“Non-admitted [insurers] are becoming more common,” said Kurzban. “It is good that we have that option.” Lenders dictate the need for an A- rating or better, according to Kurzban, who also notes that some properties can become self-insured while also acknowledging that it’s “very risky.”
Gilmore’s firm has tapped the alternative insurance market for some properties. “Given that we have a large, geographically diverse portfolio with exposure to certain catastrophic risks, we use both admitted and non-admitted insurers,” he said. “Our experience has been very positive, and all the insurers we work with are highly rated.”
Fair Access to Insurance Requirements (FAIR) plans are state-run plans that provide coverage for firms that can’t find insurance in the open market and are often considered the last resort.
The Citizen Property Insurance Corporation was created by the Florida legislature as a non-profit, tax-exempt government entity to offer coverage in the Sunshine State which is usually touted as the canary in the coal mine for insurance challenges.
“The perfect microcosm of why the federal government and/or state governments must step in to assist multifamily owners and single-family homeowners is Florida,” said Kadish.
“If Florida is to remain near the top of retirees’ favored places to reside and continue to increase its overall population, legislation must be implemented to protect existing owners from rising rates and encourage more carrier competition.”
Selm’s firm hasn’t seen any death spiral situations where a property becomes uninsurable and is forced to close. “It’s a concerning possibility that some communities may face operational challenges due to continued increased insurance rates. Currently, we don’t anticipate any of our properties to experience non-insurability and/or the need to cease operations.”
Moving In and Moving Out
Firms looking to move into or out of various markets have to factor in all the costs including property insurance premiums. The value-add segment of the market remains under duress from high capital costs. Factoring in the uncertain insurance situation ups the stakes.
“The impact of rising insurance costs and/or inability to secure adequate insurance coverage in certain markets with more exposure to natural disasters has significantly impacted the viability and attractiveness of investments, causing us to pass or at least pause for the time being,” said Selm.
Selling out of a market can also be complicated by the costs of keeping the place insured. “Rising insurance rates haven’t solely required us to hold onto any properties,” said Selm. “However, it is transparently becoming a larger component in the underwriting process and has been much more impactful to the sale process.”
Long-Term Answers
Solving the insurance puzzle with a long-term solution that works in every part of the country is not so simple, but the people paying the premiums have suggestions, including the possibility of using the feds as underwriters.
“Long-term solutions could involve government partnerships to create reinsurance programs that protect insurers from catastrophic losses, thus stabilizing premiums,” said Selm. “Additionally, federal incentives for disaster preparedness and resilience improvements could mitigate risks and lead to lower premiums over time.”
The role played by the Federal Emergency Management Agency (FEMA) may also play a role in the solution. “Government involvement during catastrophic events should be limited to emergency response—providing shelter, food, water and medical assistance—along with repairing and rebuilding infrastructure, ensuring access and expediting the planning and building permit review process,” said Gilmore.
Individual states regulate the insurance industry with Uncle Sam providing oversight that was strengthened via the Dodd-Frank Act. There are different opinions in the multifamily housing industry about the fed’s role.
“Congress could play a pivotal role by enacting legislation that supports the creation of a national insurance program for high-risk areas or providing financial aid for mitigation projects,” said Selm. “Incentivizing insurance companies to enter high-risk markets through tax breaks could help alleviate some of the financial burdens associated with rising premiums.”
According to Gilmore: “Other than providing basic consumer protection and serving as a watchdog to prevent price gouging and fraudulent activity, I believe the federal government should refrain from deeper intervention and instead allow an open insurance market to operate.”
Scott Sowers is a freelance writer.