Real Estate Insurance Faces Shifting Risks and Opportunities in 2025
The real estate industry is always evolving, and with it, the insurance market. While the property insurance sector is showing signs of improvement, liability risks continue to present significant challenges for buyers. Navigating these complexities requires proactive risk management and a keen understanding of market dynamics.
Property Insurance: A More Favorable Outlook
After several years of difficult renewals, the property insurance market is experiencing positive changes. Following the Jan. 1, 2025, treaty renewals, insurers are positioned for growth. They’re offering competitive pricing, broader terms, and improved conditions to real estate buyers. A key driver of this shift is increased capacity in the shared and layered marketplace, leading to rate reductions, with some buyers seeing decreases of 15% or more. Even buyers with past losses are generally seeing lower rates, although their reductions might not be as substantial as those with clean records.
Beyond pricing, policy terms and conditions are also becoming more favorable. Insurers are now more flexible and willing to reintroduce advantageous terms. However, this market softening could be tempered by catastrophic events. A major hurricane season or a series of significant storms could slow the downward rate trend.
While the impact of recent California wildfires remains uncertain, they are not expected to considerably affect the commercial property insurance market since most damages were residential. Nevertheless, insurers are still refining their risk models for wildfire, winter freeze, and convective storm losses, recognizing the growing financial impacts they have.
Key Property Risks: A Proactive Approach
Even with improved market conditions, real estate owners must proactively manage key risks to minimize property losses.
- Aging infrastructure: Older buildings and deferred maintenance, notably on plumbing, heating, and electrical systems, present a significant risk. Water damage, in particular, can have severe financial consequences.
- Fire and explosion risks: These events can be deadly and lead to extended tenant displacement during repairs. While the total number of fires decreased in 2023, the total damage costs increased, highlighting the growing severity of fire-related claims.
- Extreme weather events: Secondary perils like floods, hailstorms, tornadoes, and severe thunderstorms are an increasing concern. The U.S. experienced 27 weather-related disasters exceeding $1 billion in economic losses in 2024, with severe storms accounting for the majority.
- Structural failures: Internal defects, environmental factors, or external stressors can lead to costly repairs or building collapses. Although major failures are rare, even minor ones may cause disruption and expense.
Challenges in Liability Lines
Liability insurance presents a more complex landscape for real estate buyers. General liability (GL) and umbrella/excess insurers are more selective about writing real estate risks, and many have left the market altogether. Those that remain are implementing higher pricing, stricter terms, and exclusions that may conflict with lender requirements.
Underwriters are carefully scrutinizing risk factors, and some exclusions may conflict with lender requirements. Real estate firms face exclusions, higher deductibles/self-insured retentions (SIRs), and evolving state regulations, compelling them to rethink their risk management strategies. Moving to a loss-sensitive program from a guaranteed cost insurance program requires a significant change in both finances and administration.
Liability Risk Drivers
The real estate insurance market is facing an array of key liability risk factors:
- Violence-related claims on premises: Assaults and violent crimes in buildings and adjacent areas are prompting lawsuits. Insurers are factoring in crime scores when pricing policies and increasingly excluding or sublimiting coverage for certain claims.
- Habitational lender requirements: The Federal National Mortgage Association (Fannie Mae) recently issued new stipulations, prohibiting GL exclusions for assault and battery, abuse and molestation, animals, or firearms. The cost to include these coverages can be prohibitive.
- Human trafficking liability: The hospitality sector faces increased legal scrutiny, with claims for failure to prevent trafficking. Some states have revived statutes of limitations.
- Third-party litigation funding: Plaintiffs’ attorneys are receiving financial support from third parties, which then take a percentage of the outcome.
- Tenant litigation and habitability claims: The habitational sector is seeing more tenant lawsuits over property conditions. Some insurers are introducing exclusions for habitability claims unrelated to property damage.
- Cybersecurity risks: Data breaches and cyberattacks are a consistent and growing threat, targeting tenant, financial, and operational data.
- Employment practices liability: Segments with high turnover or seasonal workforces are exposed to claims of wrongful termination, discrimination, and harassment.
- Contractual liability: Poorly drafted contracts can create unintended liabilities.
One positive aspect of casualty lines is that workers’ compensation is still profitable. Rate reductions are expected to continue in 2025. Companies with considerable workers’ compensation expenses could attract greater interest from insurers.
Recommended Practices for Insurance Buyers
To secure the most favorable rates and terms, real estate insurance buyers must prioritize coverage submission quality and accuracy. Here’s what you should consider.
- Prioritize data accuracy: Precise property valuations are critical for pricing.
- Strengthen contract language: Contracts must be structured to limit unnecessary liabilities.
- Leverage risk retention strategically: Meaningful risk retention provides leverage in securing favorable terms.
- Be proactive on claims prevention: Reduce risks with proactive management. This includes:
- Maintaining sidewalks, lighting, and security.
- Utilizing cameras and sensors.
- Implementing pre-storm preparedness plans.
- Build strong relationships with property managers: Property managers play a crucial role in reducing and resolving issues.
By focusing on these areas, real estate insurance buyers can position themselves for long-term success in an ever-changing market.
