Hurricane Idalia is predicted to cause a spike in commercial real estate insurance costs in Florida, according to a Reuters report.
Costs are expected to rise particularly for owners of apartments and other multifamily properties.
On Wednesday, Idalia slammed into Florida’s Gulf Coast as a Category 3 hurricane with sustained winds reaching up to 125mph, according to Reuters.
Scientists say that global warming is making hurricanes more powerful, Reuters reported. Ten insurance executives and analysts interviewed by the news agency said that these worsening storms are driving up insurance costs for commercial real estate in California and southern coastal states like Florida.
This year, Florida commercial property insurance rates have risen to 93 cents per $100, Reuters reported. Last year, those rates were 68 cents per $100.
The spike was driven largely by 2022’s Hurricane Ian, the worst storm to hit Florida in 20 years, according to Reuters. Ian caused $53 billion of insured damages in the state.
“The bottom line is the economics of climate change are coming into our business, and if you’re not focused on it, you’re missing something,” Willy Walker, CEO of commercial real estate lender Walker & Dunlop, told Reuters.
Cost spikes have been highest among apartments and other multifamily properties, Reuters reported. Those buildings are more likely to have wooden frames, which increases fire risk, and their high tenancy rates generate more claims.
UBS expects Idalia to result in $9.36 billion in insured losses, according to Reuters. Those losses will mainly come from homeowners and commercial property, the news agency said.
“Compared to other [commercial real estate] classes, multifamily has half, if not a third the amount of insurers willing to underwrite the risk,” Ryan Barber, managing director at Marsh, told Reuters.
Martha Bane, managing director of Gallagher’s property practice, told the news agency that Florida multifamily property owners have seen the greatest insurance cost hikes of all states and asset classes in the nation.
“Wood frame multifamily assets in Florida will be skewed in the impact from a financial standpoint,” Bane told Reuters. “They are most likely to suffer significant damage, already have high deductibles, and they are going to see elevated rate increases and just a general pullback in coverage.”
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