I recently reported on how the property insurance crisis in Florida is posing challenges for commercial real estate. But Florida is far from the only state where climate-change-fueled natural disasters are causing chaos for property insurance. The increase of severe weather in California in recent years is also making insurance companies in the Golden State reconsider policies there, with some well-known insurers trying to pause all new commercial property policies.
One insurer, Allstate, is seeking approval from California’s Department of Insurance to stop writing new business coverage in the state entirely. Allstate’s move isn’t huge news, given that it doesn’t write many commercial policies in California, but it signals a shift in a state besieged by wildfires, drought, and, recently, flooding and torrential downpours. The recent flooding from the atmospheric rivers in California led to an estimated $31 to $34 billion in economic losses, including property damage. It is just one recent natural disaster leading to higher insurance rates for property owners.
California real estate investors say that for properties with high natural-disaster exposure, they’ve been quoted rate increases between 30 to 50 percent. Even for properties without catastrophic exposure, rate increases are expected at about 10 to 25 percent. Commercial property insurance for Class A assets is expensive, but obtaining coverage for Class B and C properties is nearly impossible. Property insurance problems are spreading in other states, too, not just in Florida and California, and they look to be a persistent real estate challenge moving forward.