The real estate industry continues to face economic uncertainty, and insurance costs are adding to its financial pressure.
After several years of difficult renewals, property insurance market conditions in the first quarter of 2025 are significantly better than over the previous 18 months. Following positive Jan. 1, 2025, treaty renewals, property insurers are poised to grow this year and are offering competitive pricing, broader terms and improved conditions to real estate buyers.
Liability lines, however, remain challenging. General liability (GL) and umbrella/excess insurers are more selective about writing real estate risks and many have exited the space altogether. Insurers that remain have increased pricing, tightened terms, and introduced exclusions that may conflict with lender requirements. Underwriters are scrutinizing risk factors more closely, and some are imposing exclusions that are at odds with lender requirements.
These exclusions, along with higher deductibles/self-insured retentions (SIRs) and evolving state regulations, are pushing real estate firms to rethink risk management strategies. Moving from a guaranteed cost insurance program (with no deductible) to a loss-sensitive program represents a significant financial and administrative adjustment. For larger real estate organizations, an SIR of $100,000 is often the starting point in insurance negotiations.
Whileretaining risk can lowerupfront insurance costs and reducelong-term total cost of risk, it requires proactive claims management. Working with third-party claims administrators (TPAs) can help real estate firms gain insights from loss data, allowing for faster claims resolution at lower costs compared to conventional guaranteed cost programs, where claims may be pooled into broader settlement strategies.
Property market grows favorable despite infrastructure, fire, and weather risks
Property insurance market conditions have improved significantly over the past year, with double-digit rate reductions becoming increasingly common for buyers with good loss histories.
Jan. 1, 2025, treaty renewals were highly favorable for property insurers, which now have aggressive growth targets for the year ahead. Increased capacity in the shared and layered marketplace has fueled greater competition, leading to rate reductions of 15% or more for many buyers. Single-carrier placements are also experiencing rate decreases, though at a slower pace. Even buyers with significant losses are generally renewing at lower rates, although their reductions are not as substantial as those with clean loss histories.
Beyond pricing, policy terms and conditions are also improving. During the hard market, insurers tightened policy language to their advantage, but they are now more flexible and willing to reintroduce favorable terms that were previously available.
Market softening, however, could be tempered by catastrophic events. A major hurricane season or multiple large-scale storms could slow the downward rate trend. The impact of recent California wildfires remains uncertain, but since the majority of losses were residential, they are not expected to significantly impact the commercial property insurance market. That said, insurers continue to focus on refining their risk models for wildfire, winter freeze, and convective storm losses, recognizing their growing financial impacts.
Key property risks for real estate insurance buyers
While property insurance conditions are improving, real estate owners must remain proactive in mitigating key risks that drive property losses, including:
Aging infrastructure. Older buildings and deferred maintenance on plumbing, heating, and electrical systems present a significant risk. Water damage, in particular, can lead to severe financial consequences for property owners.
Fire and explosion risks. These events can be deadly and may displace tenants for extended periods while buildings are repaired or rebuilt. According to the U.S. Fire Administration (opens a new window), the total number of fires in 2023 decreased by 8% to 1.39 million, but total damage costs increased by 23% to $23.2 billion, highlighting the increasing severity of fire-related claims.
Extreme weather events. While natural catastrophes such as hurricanes tend to be less frequent, secondary perils — including floods, hailstorms, tornadoes, and severe thunderstorms — are a growing concern. These events can cause substantial property damage and business disruptions. The National Oceanic and Atmospheric Administration (NOAA) (opens a new window) reported that in 2024, the U.S. experienced 27 weather-related disasters exceeding $1 billion in economic losses, with 63% of these events being severe storms. Over the past three years, NOAA has recorded 73 billion-dollar disasters, compared to an annual average of just nine events since 1980.
Structural failures. Internal defects, environmental conditions, or external stressors can lead to building collapses or costly structural repairs. While catastrophic failures like the 2021 Surfside, Florida, condominium collapse (opens a new window) are rare, even minor structural failures can be disruptive and costly to property owners.
Crime, litigation, and compliance among liability risk drivers
Real estate insurance buyers are confronting an increasingly complex liability market, driven by several key risk factors. These include:
Violence-related claims on premises. Assaults and violent crimes occurring in buildings and adjacent areas (for example, parking lots) are prompting lawsuits against property owners. Insurers are factoring in crime scores when pricing policies and are increasingly excluding or sublimiting coverage for animals, assault and battery, and abuse/molestation-related claims.
Habitational lender requirements. The Federal National Mortgage Association (Fannie Mae) (opens a new window) recently issued new guidelines and will no longer accept GL exclusions for assault and battery, abuse and molestation, animals, or firearms, even though these exclusions are becoming more common in the insurance market. Where insurers are still willing to provide these coverages, the cost to include them can be prohibitive for property owners. Stand-alone options for abuse and molestation and firearms coverage are available through London markets, but costs and coverage terms vary significantly. For some real estate portfolios, the inability to secure acceptable coverage could result in deteriorating loan terms, including the requirement of an additional $250,000 escrow to cover these exposures.
Human trafficking liability. Lawsuits alleging failure to prevent trafficking are particularly problematic in the hospitality space. The hospitality sector is experiencing heightened legal scrutiny. In some states, revived statutes of limitations allow lawsuits against hotels for incidents that occurred 10 to 15 years ago.
Third-party litigation funding. Plaintiffs’ attorneys are finding financial support to bring high-value cases from third-party litigation funders, which take a percentage of the outcome. A downside for defendants in real estate and other industries is few states mandate disclosure of litigation funding.
Tenant litigation and habitability claims. The habitational sector is facing more frequent lawsuits from tenants over property conditions. Some insurers are introducing exclusions for habitability claims unrelated to bodily injury or property damage. Additionally, evolving tenant protection laws — such as Colorado’s updated habitability laws (opens a new window) — are shifting more legal responsibility to landlords.
Cybersecurity risks. Data breaches and cyberattacks are a growing risk for real estate firms, as tenant, financial, and operational data become prime targets.
Employment practices liability. In segments with high turnover or seasonal workforces are exposed to wrongful termination, discrimination, and harassment claims.
Contractual liability. Poorly drafted contracts can leave real estate firms vulnerable to unintended liability. Ensuring proper risk transfer and contract clarity is critical to mitigating exposure.
One positive development in casualty lines: Workers' compensation remains profitable for insurers, and rate reductions are expected to continue in 2025. Companies with significant workers’ compensation spend may attract greater interest from insurers than peers without this exposure.
Recommended practices for insurance buyers
To secure the most favorable rates and terms, real estate insurance buyers must prioritize coverage submission quality and accuracy. Underwriters expect buyers to evaluate and report individual property valuations with precision, as accurate data can directly impact pricing. Additionally, demonstrating a commitment to loss mitigation signals to insurers that a property owner is actively managing risk, which can lead to better coverage terms and pricing.
As renewal discussions approach, real estate insurance buyers should:
Prioritize data accuracy. Ensuring precise property valuations in the schedule of values (SOV) is critical for pricing. In some cases, accurate data can lower modeled catastrophe exposure, resulting in reduced premiums.
Strengthen contract language. Poorly drafted vendor and tenant contracts can increase risk exposure. Insurers are closely evaluating liability risk transfer, and organizations should ensure contracts are structured to limit unnecessary liabilities.
Leverage risk retention strategically. Meaningful risk retention (such as self-insured retentions or higher deductibles) provides negotiation leverage in securing better overall terms. However, organizations must also dedicate resources to actively manage claims within those retentions. Be proactive on claims prevention.
Be proactive in claims prevention. Insurers value proactive risk management. Real estate firms should take steps to reduce claims by:
Maintaining sidewalks, lighting, and security measures.
Utilizing cameras and water sensors to detect leaks and other risks.
Implementing pre-storm preparedness plans for hurricanes, winter weather, and other major events.
Build strong relationships with property managers. Property managers play a crucial role in risk management and claims prevention. Maintaining close relationships with them ensures proactive problem-solving and swift issue resolution before risks escalate.
By focusing on data quality, strengthening contracts, managing risk retention, implementing safety measures, and fostering strong property management relationships, real estate insurance buyers can position themselves for long-term success in an evolving insurance market.
For more information, contact a member of the Lockton Real Estate (opens a new window) team.