After years of sky-high insurance premiums, multifamily property owners are seeing some moderation in their insurance costs in 2024. Industry experts and property owners are cautiously optimistic, viewing the recent softening as a respite, but warn of possible increases in the near future due to several unpredictable factors. Hurricanes, crime concerns, and structural risks still loom large for the sector, leaving many apartment owners wondering how to prepare for the coming years.
The Relief: Cost Moderation in 2024
For the first time in years, insurance prices for multifamily properties have shown signs of stabilizing. Executives from major real estate investment trusts (REITs) like Camden and MAA report that insurance premiums have actually decreased slightly in 2024, a welcome reprieve after several years of double-digit increases. Danielle Lombardo of Willis Towers Watson, a risk management consulting firm, has noted that property rates have moderated and, in some cases, even decreased. This trend has been particularly welcome for apartment REITs like Camden, which reported a 3% decline in insurance costs this year after grappling with a 40% increase the previous year.
This moderation stems partly from competition among insurance providers to capture more business in the multifamily sector. Camden CFO Alex Jessett pointed out that providers are offering lower rates to stay competitive, a shift that has been advantageous for apartment owners. MAA also reported a minor decrease of 1% in premiums, with CFO Clay Holder anticipating a more “reasonable growth” in insurance costs going forward, avoiding the massive hikes seen in recent years.
Storms on the Horizon: Factors Driving Future Increases
While current conditions are promising, several challenges suggest that apartment owners should brace for potential increases in insurance premiums. Natural disasters like hurricanes and the inherent risks in multifamily properties remain significant drivers of insurance costs. Hurricane season has already had an impact, with Hurricanes Helene and Milton causing massive property damage in the southeastern United States. Karen Clark & Co., a catastrophe modeling firm, estimated that Hurricane Milton alone could result in $36 billion in insured losses. Although Camden’s Jessett noted that their portfolio doesn’t include properties in high-risk areas like the Southeast, such large-scale events still have a ripple effect on the national insurance market, affecting premiums for all types of properties.
In addition to natural disasters, other liability concerns for apartment complexes, such as violent crime, sexual abuse, and dog bite incidents, contribute to rising insurance costs. The Gallagher firm’s 2024 Summer Market Update forecasts casualty insurance costs for multifamily properties could rise by 10% to 20% for primary liability and 10% to 15% for umbrella rates, as underwriters scrutinize crime scores and other risk factors more closely.
Structural risks in multifamily construction also drive insurance costs. Of the 440,000 new apartment units completed in 2023, 81% were constructed using wood frames—a material more susceptible to fire damage than concrete or steel. The U.S. Fire Administration reported $10.8 billion in losses from residential fires in 2022, with cooking accidents accounting for nearly half. The high proportion of wood-frame apartments poses a heightened risk for insurers, who are mindful of both fire hazards and the increased likelihood of severe weather damage.
Budgeting Challenges in a Volatile Market
This combination of disaster risks, liability concerns, and structural vulnerabilities makes it difficult for apartment owners to predict future insurance costs. Lombardo acknowledged that the volatility of weather events and the fragility of the property insurance market complicate budgeting for multifamily property owners. When costs vary significantly from year to year, it becomes challenging for owners to establish long-term financial plans, especially for those managing portfolios that span different geographic regions with varying risk factors.
The current softening of rates, while encouraging, is likely temporary. Insurance executives and industry insiders caution property owners not to view 2024 as a sign of permanent cost stabilization. Instead, they recommend focusing on risk mitigation measures, such as improving security protocols and exploring new construction techniques that reduce fire risks. These measures could help owners negotiate more favorable insurance terms in the future, regardless of market fluctuations.
A Momentary Reprieve, But Prepare for Change
For multifamily property owners, the recent moderation in insurance costs offers a much-needed breather. However, the market remains highly sensitive to unpredictable variables like natural disasters and crime rates, suggesting that premium increases may be inevitable. Preparing for these potential challenges by adopting proactive risk management strategies is essential for those looking to safeguard their assets and budget effectively in an unpredictable insurance landscape. The temporary relief may be short-lived, but strategic planning can help mitigate the impact of future fluctuations in insurance costs.
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