Trends in Property and Casualty Insurance

Property insurance rates are about to rise sharply, and the shift is happening faster than many realize. Reinsurers, who back up primary insurers by sharing their risk, are adjusting their pricing models as climate risks grow more severe. New disaster risk models—like a recent update from RMS—are signaling increased losses for high-risk areas, particularly along the Gulf Coast, Florida, and Texas. These models anticipate more catastrophic events, and reinsurers are responding by raising their rates and tightening contract terms. This will have immediate effects. As reinsurers demand more from primary insurers, those companies will either pass along the costs to homeowners or pull out of markets entirely. We’re already seeing this in states like Florida and California, where premiums have surged by more than 40% in some areas. It’s a domino effect. Reinsurers need to protect their capital, insurers need to manage their risk, and homeowners are left with fewer and more expensive insurance options. In some cases, they’ll choose to go without insurance altogether—betting that federal disaster aid will cover them in the event of a catastrophe. This isn’t sustainable. As urban development continues in high-risk areas, the risks will only multiply. Insurance, which has historically helped homeowners bridge the gap between crisis and recovery, is becoming prohibitively expensive. We’re heading into a new phase where risk assessments are reshaping the entire market for coastal real estate. The question isn’t whether the insurance market will adapt—it’s how fast, and at what cost to those living in vulnerable areas.

Markets speak louder than climate models. Even before the recent fires in LA State Farm, Allstate, and other insurers had stopped selling new home policies in California, citing the growing risks of wildfires. In the devastated Palisades area, 69% of homes lost their insurance before disaster struck. Some may have signed up for the state’s limited fire insurance program (FAIR) and some may have been without insurance. Now the FAIR plan faces $5.9B in potential Palisades claims. Insurance companies spread their risk by buying their own insurance (reinsurance). FAIR's $2.5 billion backup plan falls short of the $5.9 billion they might need to pay out. This funding gap means delayed payments and costlier coverage for homeowners. We see this playing out in Houston where Homeowners are paying $3,740 annually for insurance - nearly 3X the national average and 60% higher than the Texas state average. This is the new reality for climate-vulnerable cities. Our once-vibrant communities aren't just facing environmental risks—they're becoming financially untenable. When insurance becomes unaffordable, thriving neighborhoods transform into ghost towns—first by natural disaster, then by financial impossibility. Image credit: GZERO Ico Oliveira. Cost of climate disasters showing up in the cost of home insurance. #LAfires #Insurance #climatetech #climatechange #climateVC #venturecapital

Climate risk isn’t just an environmental issue. It’s reshaping the financial landscape for real estate. With insurance premiums soaring in states like Florida ($5,003 annually in Miami) and Louisiana ($3,983 annually in New Orleans), multifamily investors are facing new challenges that demand smarter strategies. What Investors Need to Know 🌍 Climate Risk = Higher Costs: Insurance premiums are spiking in areas prone to flooding and severe weather. These "climate abandonment areas" are seeing rising operational expenses, impacting profitability. 🏠 Value vs. Risk: Cities like Detroit may have lower home values but still face high insurance costs due to aging infrastructure and localized risks. This trend adds complexity to underwriting multifamily deals. 📍 Location is Everything: High-risk areas may struggle to retain tenants as rising costs push families to relocate. Multifamily investors should carefully weigh potential rental demand against long-term risks. Investor Takeaways Mitigate Risk with Diversification: Avoid concentrating assets in high-risk areas; diversify portfolios across stable, low-risk regions. Focus on Resilient Design: Invest in flood-proof and climate-resilient construction to reduce insurance costs and future-proof properties. Leverage Data: Use climate and insurance analytics to identify regions with growth potential and manageable risks. With 2.9 million census blocks impacted by flood risk alone, the pressure is on multifamily investors to adapt to a rapidly changing environment. How will your portfolio weather the storm? #RealEstate #MultifamilyInvesting #ClimateRisk #InsuranceCosts #ResilientHousing

You might not think Trump’s ask for a billion dollar donation from oil executives in return for a promise to scrap Biden’s climate policies has anything to do with major insurers like Allstate and State Farm refusing to insure homes in states like California, Florida, and Louisiana. Unfortunately, they overlap in a dangerous nexus – extreme climate change risk driven by fossil fuel pollution is behind the insurers’ decisions. For over 40 years, I have worked to cut the air pollution that damages public health and accelerates climate change risk, but I hadn’t felt its personal cost. That changed when I recently learned that my California home insurance policy with the same insurer for more than three decades will not be renewed. And not only is replacing it virtually impossible, successfully finding alternative coverage will make my monthly bill two to three times higher. And I’m not alone. Tens of thousands of California homeowners are facing similar issues, but it’s not just a California problem. Extreme weather is driving unprecedented levels of property damage nationally, leading insurance companies to flee markets across the country. In states like Louisiana, Florida, and parts of the Midwest and Southwest, residents cannot obtain insurance, or the premiums have become so prohibitive that they are forced to go without. More than 35 million properties – a quarter of U.S. real estate – face skyrocketing insurance prices and plummeting coverage due to climate change risks. Insurance companies have made it clear to regulators that extreme weather, fueled by climate change, is driving these changes. Read my Oped in Forbes

Why Insurance Companies Are Suddenly Betting Big on Clean Energy Think of insurance companies like the world's biggest financial weather forecasters. When they see storm clouds gathering, smart people pay attention. And right now, they're sounding an alarm that's shaking up the entire energy industry. Here's what's happening: Insurance companies just reported a staggering $135 billion in climate-related losses for 2024—their fifth straight year over $100 billion. For perspective, that's like losing an entire Netflix or Boeing to extreme weather... every single year. Let's break down why this matters for everyone: 1. The Domino Effect - Insurance costs soaring in vulnerable areas - Home insurance becoming harder to get in some states - Property values at risk in coastal regions - Traditional power systems proving too fragile 2. The Market Response - Major insurers pulling out of high-risk regions - Companies scrambling to climate-proof infrastructure - Utilities rethinking how they deliver power - New focus on local energy independence 3. The Silver Lining - Insurance giants backing clean energy solutions - New technologies making buildings more resilient - Communities investing in local power generation - Smart grids reducing blackout risks Here's what makes this exciting: The same insurance companies that once backed coal plants are now becoming clean energy's biggest allies. They're not doing it to save the planet—they're doing it to save their business model. Question for business leaders: How are you preparing your operations for this shift in the insurance market? What strategies are you seeing work best to protect against rising climate risks? #BusinessStrategy #CleanEnergy #RiskManagement #MarketTrends

Are catastrophe risk scores becoming the "credit scores" of property insurance? After participating in a panel for the Florida House of Representatives where legislators posed tough questions about why insurance premiums keep rising and what can be done about it, I am studying the drivers of modern property insurance pricing. One key trend emerging is that peril-based risk scores—for wildfire, flood, hurricane, earthquake, and hail—are becoming a defining factor in how insurance is underwritten and priced. These scores are already influencing rates today, but the future points to every structure having a risk score, just as every individual has a credit score. The question isn't if they'll be used—it's how they'll be used. This brings me to Colorado's newly proposed HB 25-1182, which seeks to bring greater transparency and fairness to how wildfire risk scores are determined and used. If passed, the bill would require insurers to: 1. Disclose a homeowner’s wildfire risk score annually and explain how it impacts their premium. 2. Provide clear paths for homeowners to lower their risk score through mitigation measures. 3. Establish an appeals process so that policyholders can challenge inaccurate or unfair risk assessments. It seems that Colorado and other states are tackling the same issue we faced with credit scores years ago: If these risk scores are going to dictate financial realities for millions of homeowners, we need clarity on how they’re calculated, a process for consumers to improve them, and protections against opaque algorithms making coverage unaffordable. Should peril risk scores be treated like credit scores—with mandated transparency, appeal rights, and clear criteria? Or does risk-based pricing require a different approach? I will be writing more about this topic on my blog. #insurance #riskmanagement #wildfire #climate #policy #transparency https://lnkd.in/eS5mFksJ

The Oracle of Omaha is hinting at concern over #climate-related physical risk. Premiums rose at the property-casualty business of Berkshire Hathaway Inc. last year, reflecting a major increase in damage from severe thunderstorms, Warren Buffett, Berkshire’s chairman, writes in his latest annual letter to shareholders. “Climate change may have been announcing its arrival,” he observes. “We are not deterred by the dramatic and growing loss payments sustained by our activities,” he notes later, adding parenthetically, “As I write this, think wildfires.” 🔹 Buffett’s reference aligns with the available data on climate-related losses: Last year included a high frequency of severe thunderstorms that mostly affected the U.S., according to the Swiss Re Institute, which observed in December that “a warming climate favors the occurrence of many of the natural catastrophes observed in 2024.” Insured losses from so-called severe convective storms totaled USD 51 billion globally last year, their second-highest after 2023. 🔹 Berkshire’s experience also mirrors the view of the market, where a majority (57%) of investors say that extreme weather events are having a significant impact on the global economy, according to a recent survey by the MSCI Sustainability Institute and MSCI’s Climate Risk Center. All the more reason for financial institutions to incorporate advances in asset-specific risk insights that combine natural catastrophe and climate risk modeling with geospatial data. ⭐ Learn more about the collaboration between MSCI and Swiss Re Reinsurance Solutions to enhance the financial sector’s ability to assess, manage and mitigate physical climate risk, here: https://lnkd.in/ddbtXRqS ⭐ Download the full results of our climate risk survey here: https://lnkd.in/gjeqT4yJ ⭐ You can find the Swiss Re Institute’s report here: https://lnkd.in/d9x79YJ5 ⭐ Read Warren Buffett’s latest annual letter here: https://lnkd.in/dTKZ-res

Weekly Monday Sustainability Post: Climate change will reduce real estate value in the near-term with a recent study putting it at $1.47 trillion lost in the next three decades. Some areas will suffer more than others. For example, some counties in California, Florida, and Texas will experience net declines of 10% to 40% in their property values by 2055. In addition to property values going up, insurance premiums are set to increase. There's an estimated 4X premiums increase in Miami, 3X in Jacksonville, Tampa, and NOLA, and 2X in Sacramento (see graphic with this post). Nationwide, insurance premiums will increase an average of 29.4% by 2055. This is comprised of a 18.4% correction for current underpricing and an 11% increase from growing climate risks. Some areas will benefit. Other properties across the country will see an increase in $244 billion. They'll also see more people coming in as 55 million people migrate away from extreme heat, wildfires, and flooding. This year alone is expected to see 5 million people move. Areas expected to see domestic climate migrants are northern, currently less-populated areas from Montana to Wisconsin and in parts of the East. With nearly two-thirds of U.S. adults being homeowners (including myself likely in the near-future), this is scary news. You can't just assume your property values will go up. The ramifications of climate change need to be considered when buying. People are starting to wake up. Zillow found that 73% of home buyers said at least one climate risk impacted where they shopped for a home. For more information, check out the First Street's 12th National Risk Assessment linked to in the comments. Note that the report hasn't been peer-reviewed, and there are important caveats and uncertainties associated with the work since it combines results from multiple models and peer-reviewed studies. The models don't account for climate adaptation measures and don't include inflation. These results are best used to identify locations that are most at risk for climate change-related increasing insurance costs, property devaluation, and population change. #realestate #climatechange #insurance