High-growth regime of commercial property insurance expenses

Over the past several years, something fundamental has changed. Both academic researchers and industry experts have noticed a sharp rise in property insurance premiums. Some institutional investors have gone so far as to suggest their firms avoid certain investments due to insurance uncertainty. These concerns are typically associated with an expectation of extreme hazard risk due to increased losses from natural disasters.

Measuring changes in commercial property insurance costs is very challenging because property characteristics and locations vary widely, coverage is often customized to the insured, rate changes are regulated, and policies are segmented by risk (reinsurance). Many studies rely on aggregated data that is self-reported by ever-changing insurance carriers, forcing interpretation to some hypotheses based on simple correlation. Studies and news reports that attempt to describe changes in insurance rates and assign causal factors based on these results are stretching well beyond the data.

The best studies to date use mortgage escrow data from Commercial Mortgage-Backed Securities (CMBS) loan performance records and insurer filings. Data from these records more closely match individual property insurance effects. They also cover a very wide range of properties, from very small individual investors to the largest institutions. These studies point to a sustained repricing cycle that provides some confidence to the idea that insurance rates are rising rather than a sample is changing. Conclusions are consistent with the common reports that insurance costs are rising, even though the cause of these increases remains speculative.

The following analysis directly follows insurance expenses inside same-store property operating statements across a large institutional portfolio. Thanks to the National Council of Real Estate Investment Fiduciaries (NCREIF), we were granted research permission to analyze a dataset that covers more than 43,000 institutional-grade commercial properties with more than 650,000 quarterly observations from 2010 through 2024 across major property types. We are able to track the expense components from property-level operating statements to measure the insurance changes faced by each property owner.

In summary, using a panel framework, we document a pronounced shift in the dynamics of commercial real estate insurance expenses beginning around 2018. Before then, insurance cost growth was a bit volatile but modest over a seven-year period. Starting in 2018, year-over-year same-property insurance expense growth accelerates sharply, with two years’ growth exceeding 20%. At the same time, insurance becomes a growing share of total operating expenses. We find that these cost pressures are uneven across states, and the pattern may differ from expectations.

Our property-level evidence independently confirms and helps quantify what prior academic and industry research has been signaling. Commercial property insurance costs are becoming a more volatile, location-sensitive, and financially material component of asset performance.

A structural break in insurance trends

The NCREIF panel spans most major commercial property types, i.e., industrial, apartment, office, retail, hotel, self-storage, seniors housing, and land, and tracks the same properties over time. That “same-property” structure matters in our analysis. We are not simply observing more risky assets entering the dataset; we are tracking the same properties over time. By aggregating quarterly records into annual same-property panels, we can observe how insurance expenses change for the same properties over the years, filtering out portfolio turnover and composition effects.

Figure 1 shows the national trend in year-over-year same-property insurance expense growth. From 2010 through 2017, same-property insurance expense compounded at roughly 75 basis points per year. This average is comprised of two high-growth years, greater than 10%, and several declining expense years. The cost growth pattern is not stable but seems consistent with a competitive, yet regulated, well-capitalized insurance market. The annual insurance cost growth rate is also well below the inflation rate of 2.3% during that period.

Source: NCREIF

Post 2018, growth peaks in two years, 2020 and 2023, over 20% (compared to 10% during the earlier period) and remains significantly positive during other years (compared to declining in the earlier period). Average annual expense growth during this period was 14.3%, as inflation was elevated but only 3.7%. At a minimum, we can declare that a new plateau of insurance expense has been established by 2024. In 2017, insurance expense was 6% greater than it was in 2010 across the same properties. In 2024, insurance expense was three times the cost of 2017 across the same properties.

Importantly, this finding is consistent with independent research using completely different data sources. Studies based on Trepp CMBS data and agency mortgage portfolios (Fannie Mae and Freddie Mac) reach similar conclusions: The commercial property insurance market shifted from a prolonged “soft market” to a sustained “hard market,” with tighter underwriting, higher pricing, and more constrained capacity.

What changed after 2018

Insurance pricing doesn’t move solely on claims history. It reflects expectations about future losses, the cost of risk capital, regulatory constraints, and conditions in global reinsurance and catastrophe bond markets. The post-2018 shift appears to come from several forces arriving at once.

Explicit pricing of expected climate risk

Insurers are concerned about forward-looking hazard expectations and try to set premiums to offset future losses. Recent academic work suggests that insurance premiums have become more sensitive to disaster risk measures over time. Without entering the disaster debate, we must acknowledge that a focus on severe weather-related events dramatically increased following the Paris Climate Agreement in December 2015. An unlimited number of studies forecasting increasing future disasters have erupted and sparked worldwide regulatory response. This intense focus on the possibility of growing hazardous weather is likely influencing insurance underwriting.

There is some evidence that post-2018 underwriting has become more granular, leading to wider spreads across markets and less cross-subsidization between low- and high-risk areas. Perhaps this effect should not impact national averages, but it is a common argument used in news reports. The following statewide analysis will address this point, and the result is not obvious.

Regulation and legal environment

Commercial property insurance comprises several components of coverage, such as hazard, liability, disruption, etc. Hazard and general liability are key components with recent pricing volatility. Hazard has been the most expensive component of property insurance, covering loss due to property damage from weather events or accidents. Most reports assume this is the only component and thus pricing changes are due to varying damage results. However, general liability coverage has become an impactful component, arguably on a low costs basis.

Tim Peterson, chief operating officer of Altman Development Corporation, points out that general liability insurance cost “has increased exponentially in the last few years” and has “become a material part of our total insurance costs.” He suggests that most recently, rising liability costs have offset falling hazard costs. Peterson is “confident that this is due to increased litigation.”

Reinsurance and risk capital

Primary insurers do not bear catastrophic risk alone. They hedge it through transferring a share of catastrophic risk to reinsurers or catastrophe bonds, which are global capital-market instruments tied to disaster outcomes. When the price of that capital rises, primary insurance pricing follows.

Recent research using mortgage escrow data shows that U.S. catastrophe reinsurance prices roughly doubled between 2018 and 2024, and that this increase materially raised primary insurance premiums through a measurable pass-through channel. Areas with higher correlated catastrophe exposure experienced the largest premium increases, even after controlling for expected losses. This matters because reinsurance markets are global and forward-looking. Reinsurers and catastrophe bond investors rely heavily on climate and catastrophe modeling. The magnitude of this modeling effort increased dramatically following the Paris Agreement. When reinsurers reprice risk, the effect spreads across the insurance system.

Insurance is taking a bigger bite out of operating budgets

Premium growth alone doesn’t tell the whole story. What matters operationally is insurance expense relative to total operating expenses, i.e., how large a slice of the cost pie it takes.

Insurance share doubled from market floor to 2024 — and sits 33% above the 2013 baseline

Source: NCREIF

Figure 2 tracks insurance expense as a share of total operating costs at the property level. Throughout the study period, insurance comprised between 4% and 8% of total operating costs. Interestingly, this ratio is lowest during 2018 and rises steadily thereafter. Insurance expense was almost 6% in 2013, falling to 4% before its recent climb to 8% in 2024. Over the past 15 years, insurance not only became more expensive in absolute terms but has also consumed a larger portion of the operating budget.

Source: NCREIF

This measure puts the insurance cost question into context by revealing the magnitude of its effect. To say that insurance costs have tripled over the past 7 years makes a striking headline. Increasing from 4% of total costs to 8% of total costs is material and impactful but seems less dramatic. Furthermore, if we recognize that insurance costs went from 6% of total expenses in 2013 to 8% of total expenses in 2024, it becomes a rising cost that can be underwritten, at least at a national level.

Geography matters

The national annual trends show when the industry shift occurred, but state-level analysis shows where it is hitting hardest. Looking across states, we focus on the same two measures: how fast insurance costs are growing and how large insurance costs are relative to total operating expenses. A state can experience rapid growth from a low base or a high insurance burden due to persistently elevated premiums. The combination of maps clarifies our story.

Figure 3 maps the compound average annual insurance expense growth over our entire study period by state. The fastest-growing group with upper-quartile growth rates includes some expected markets, such as Florida and California. These states are quickly associated with growing weather-related disaster risk, so they fit the political narrative. However, high insurance-cost growth states also include locations that are not typically associated with catastrophe climate risk, such as Idaho, Nevada, North Dakota, and Pennsylvania.

Figure 3 – Average annual YoY insurance expense growth

The overall top quartile growth mix of states suggests that repricing is not purely driven by weather disaster risk but also by capital markets and regulatory influence. Research has documented cross-state pricing spillovers and regulatory frictions that can lead to spatial cross-subsidization. Losses in one region can influence pricing in another, especially when insurer capital is constrained. Notice that delta states have seen relatively low expense growth during this period, even though they are prone to weather events such as flooding and tornadoes. The second map will add information to this story.

Figure 4 presents insurance expense as a share of total operating expenses. This measure looks quite different across the nation, with a few states showing high growth on a high share of total expense, but many states show high growth on a low share or low growth on a high share. From the combination of maps, it is very difficult to cleanly assign changing disaster risk to insurance cost results. Florida and California fit this story, but it is unclear if the risk drove the expense growth or if the expense growth led to the weather story, which is refuted by the cost in many other states.

Figure 4 – State-level average insurance expense as a percent of total expense

Expected upper-quartile states include Alaska, California, Florida, Louisiana, Missouri, and Mississippi. Perhaps surprising states in this category are New Mexico, South Carolina, South Dakota, and Vermont. All of these markets face a high level of insurance expense relative to other operating expenses. Some became expensive insurance states during our study period and some were expensive before our start date.

Florida sits at the upper-quartile intersection of the two maps. It ranks among the fastest-growing and highest-burden states. Hurricane risk is part of the story, but not the whole story. Losses in Florida tend to be highly correlated across large areas, resulting in high portfolio correlation and making them difficult to diversify. Complicating the exposure density problem is the concentration of local insurers, which corresponds with the lack of national insurers. This is the product of another study that dates back to 2006. For now, we just focus on the result.

Small insurers with limited capital reserves rely heavily on reinsurance to manage extreme exposure, so global reinsurance pricing quickly affects Florida. Add in strict lender coverage requirements and limited room to self-insure, and premium increases translate directly into operating costs. Strong population and rent growth help offset some of this pressure, but not uniformly or fast enough. For Florida investors, insurance now directly affects acquisition pricing, holding-period cash flow, and exit expectations. One bright spot is the changing legislation that led to recent rate reductions and the reintroduction of national insurance companies.

What this means for investors

The central takeaway goes beyond the fact that insurance costs are rising; it is also that the regime changed nationwide. We have not attributed cost changes to any factor but recognize that many factors including disaster risk, regulatory changes, and future perceptions impact this segment of the market.

The accomplishment of this study is to follow same-store commercial properties to demonstrate the rate and magnitude of insurance cost growth. Indeed, there has been a recent dramatic expansion in insurance costs across the nation. The impact on total operating expense has been significant but not unmanageable with a 2% to 4% impact on the bottom line.

For investors, insurance can no longer be treated as a stable plug number in underwriting models. It deserves the same analytical attention as rent growth, financing structure, and capital expenditures. Projections should reflect location-specific hazard risk, evolving underwriting standards, lender coverage requirements, and the broader cost of risk capital. Also, more strategies should be developed to secure affordable policies that do not adversely affect investment performance while providing adequate risk coverage.