In the face of mounting natural disasters and continued inflation, the landscape of the property insurance industry is shifting dramatically. Escalating costs and increasingly frequent catastrophic events are forcing insurers and policyholders to reassess their strategies. Nowhere is this more evident than in the realm of commercial real estate (CRE). As premiums soar and coverage becomes more limited, the concept of property resilience is gaining traction as a vital component in the battle for stable, affordable insurance.

Rising Tides and Premiums: The Current State of Affairs

Natural disasters are not just wreaking havoc on our environment; they are reshaping the insurance market. The surge in disasters is directly impacting insurers and, consequently, policyholders. In 2023 (as of October 10th), there have been 24 confirmed natural hazard events with losses exceeding $1 billion each in the United States. These events included 1 drought event, 2 flooding events, 18 severe storm events, 1 tropical cyclone event, 1 wildfire event, and 1 winter storm event. The financial toll is staggering, and insurers are passing on the burden to consumers. Commercial property premiums, for instance, surged by 18.3% in the second quarter of 2023, making it harder for businesses to secure affordable coverage.

The Need for Property Resilience

In this climate of uncertainty, the concept of property resilience emerges as a beacon of hope. Property resilience refers to the ability of a structure to withstand and recover from adverse events, reducing potential damages, downtime and the loss of property value. For CRE owners and investors, embracing resilience measures could mean the difference between insurability and un-insurability.

The Many Benefits of Property Resilience

1. Reduction in Damages and Downtime:
Properties designed or modified with resilience in mind may be fortified against potential damages. This means less downtime in the aftermath of a disaster, ensuring businesses can resume operations swiftly or do not have to close at all.

2. Lower Insurance Premiums:
Insurers are beginning to recognize the value of resilient properties. By investing in building resilience assessments and implementing measures such as structural retrofits, storm water drainage systems, and wildfire defense systems, property owners demonstrate a commitment to mitigating risks. In return, insurers might offer lower premiums, making insurance more affordable in the long run.

3. Insurability in High-Risk Areas:
Resilient properties are more likely to meet insurers’ risk criteria. By adopting resilience measures, properties in high-risk zones might become insurable, providing peace of mind to owners, lenders and investors.

4. Long-Term Cost Savings:
Resilient properties are equipped to withstand adverse conditions, reducing the likelihood of extensive damage during natural disasters. This translates to significant cost savings in the long run. Property owners spend less on repairs and restoration, preserving the property’s overall condition. Consequently, the property retains its aesthetic appeal and functional integrity, ensuring that it remains a valuable asset over time. The reduced need for frequent repairs and maintenance leads to substantial cost savings, enhancing the property’s overall value.

5. Enhanced Attractiveness to Buyers and Investors:
Resilient properties are inherently more attractive to investors and buyers alike. When a property is fortified against natural disasters and climate-related risks, it becomes a secure investment. Potential buyers and investors are more likely to view such properties favorably, knowing that their investment is safeguarded against unforeseen calamities. The assurance of reduced physical risk creates a sense of confidence, making the property an appealing choice in a competitive real estate market.

6. Environmental and Social Impact:
Embracing resilience is not just about financial benefits; it’s also a commitment to environmental stewardship and community well-being. Resilient properties contribute to sustainable, disaster-resistant communities, fostering a sense of security among residents and businesses alike.

The Path Forward: A Call to Action

While insurers are beginning to consider resilience factors in underwriting, there is still a long way to go before this becomes standard practice. In the meantime, property owners and investors must take the lead. Proactively upgrading properties, obtaining property resilience assessments, and developing emergency response plans are crucial steps toward a resilient future.

Additionally, collaboration between insurers, property owners, and government bodies is essential. Insurers can incentivize property resilience by offering reduced premiums for resilient properties, encouraging owners to invest in risk-reducing measures. Governments can play a role by providing tax incentives or subsidies for property upgrades, making resilience financially feasible for all.

Conclusion: A Resilient Future Beckons

As the challenges posed by climate change intensify, the importance of property resilience cannot be overstated. By investing in resilience measures today, property owners and investors not only safeguard their assets but also contribute to the overall resilience of communities. Insurers, in turn, must recognize the value of resilience and actively support and incentivize property owners in their efforts.

The road ahead may be uncertain, but one thing is clear: property resilience is not just a solution; it is a necessity. Together, insurers, property owners, and communities can build a future where resilience is the foundation upon which thriving, disaster-resistant societies are constructed.