The real estate and construction sectors are grappling with dramatically rising insurance costs. Factors such as increased replacement costs, inflation, and rising material costs have sent insurance rates soaring. For instance, replacement costs for new projects have leapt 40% over the last four years.

Nationwide, commercial real estate is feeling the pressure, especially in high-risk, high-growth states like Texas, California, and Florida. According to the Insurance Information Institute, commercial insurance leapt 9.4% in 2022. Such increases are turning property expense ratio higher.

These rising costs and the tough insurance landscape have led to price discounts, creating a potential buying opportunity. However, it’s a double-edged sword. Assuming continued high insurance costs is a must, however if insurance reverts back toward the historic averages, values gain in property will be a byproduct.

The industry is searching of solutions, such as separating specific catastrophe insurance coverage from standard insurance policies, to lower the high premiums. More government intervention is also being sought to prevent the rising costs from hampering growth in high-growth areas. While the situation seems bleak now, these potential solutions could offer some relief, making those investment opportunities even more valuable in the long run.