The US property and casualty (P&C) insurance market is undergoing a seismic shift, driven by escalating climate risks and rising claims. But in many high-risk states, regulatory constraints prevent insurers from fully adjusting premiums to match the growing exposure. As a result, rather than simply charging higher rates, many insurers are pulling back — scaling down coverage, tightening underwriting standards, or exiting certain markets altogether.
This shifting landscape is increasingly affecting the commercial real estate (CRE) sector. Developers, lenders, and investors are facing a new reality in which insurance coverage is more expensive, harder to secure, or even unavailable in some high-risk areas.
At Goodwin’s 2025 Real Estate Capital Markets (RECM) Conference, Pari Sastry, assistant professor of finance at Columbia Business School, outlined how these forces are reshaping the economics of real estate insurance, forcing stakeholders to rethink risk management, financing, and long-term investment strategies.
This article highlights key insights from Professor Sastry’s talk. Watch her full presentation for more detail, including analysis of how climate change is affecting residential markets: “The Growing Impact of Climate Change on Real Estate Coverage.”
Surging Development in High-Risk Areas
Insured P&C losses have exceeded $100 billion globally for the past five consecutive years, according to Swiss Re, with the US accounting for about two-thirds of the global total of $135 billion in losses in 2024. Several factors are contributing to rising claims, including climate change, inflation, rising construction costs, and an increasingly litigious environment. However, the primary contributor is surging development in high-risk areas that are prone to natural disasters such as fires, floods, and hurricanes.
For instance, residential housing development has steadily increased in areas that are vulnerable to such risks. According to Redfin, 55% of US housing stock is now located in zones with high fire risk — almost twice as much as in the 1980s. This dramatic increase in development, coupled with rising population growth in these high-risk areas, has substantially heightened the potential for catastrophic losses, driving up insurance premiums.
Regulations Often Exacerbate the Challenge
In many states, insurers are limited in their ability to adjust premiums in response to the increasing risks posed by climate change. In states such as California, Florida, and Texas, for example, insurers need approval from regulators to raise premiums, often capping premiums. This regulatory constraint creates a disconnect between the actual risks and the premiums charged to property owners, including those in the CRE sector.
This not only makes it difficult for insurers to price policies in ways that enable them to turn a profit but also puts many of them at significant risk of insolvency. As a result, many insurers are exiting or scaling back their operations in certain markets. An increasing number, including large national insurers, have stopped offering new policies in high-risk areas, and others are significantly reducing their coverage options in those areas.
This creates a precarious environment for CRE investors who may find themselves unable to secure adequate insurance coverage.
What Can Developers, Investors, and Governments Do?
CRE developers and investors may be able to secure lower premiums by integrating resiliency measures into new developments, including investing in construction methods or materials that reduce the risk of damage, such as wind-resistant roofs or flood barriers. But it remains unclear how much a given investment will affect premiums in practice.
Some large CRE firms have begun to explore alternative insurance models, such as self-insuring or utilizing catastrophe bonds (cat bonds) to diversify risk. Companies such as Blackstone and Apollo have developed in-house insurance strategies to hedge against rising premiums and climate-related risks. This strategy allows them to better control their risk exposure and maintain coverage in an increasingly uncertain market.
Some states are exploring reforms to allow insurers more flexibility in adjusting premiums, loosening regulations to allow insurers to raise premiums so they more accurately reflect the risks posed by climate change and natural disasters. Such adjustments would likely lead to higher premiums in high-risk areas but could slow insurer exits from these markets.
Governments may begin to put more emphasis on resilience, particularly in high-risk areas. This could include investing in infrastructure improvements such as flood control measures or wildfire prevention programs to mitigate the impacts of climate change. Zoning regulations that limit new development in particularly dangerous areas and stricter building codes could also be part of the solution, helping to reduce future risk and the associated insurance costs.
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Climate risks are reshaping the insurance market and how real estate stakeholders approach risk management. While some relief may come from innovative insurance strategies such as self-insurance and capital market – based solutions, the industry must remain agile in responding to the dynamic and increasingly complex environment.
This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.