Commercial real estate insurance costs to double as climate change intensifies

Commercial property owners to face steep increases over the next decade

Commercial real estate insurance costs to double as climate change intensifies

Climate change will continue to drive up insurance costs for commercial real estate owners and significantly impact the profitability of insurers, according to Deloitte’s “Financial Services Industry Predictions” report.

The report revealed that the average monthly insurance cost for a commercial building in the US could rise from $2,726 in 2023 to $4,890 in 2030 - an 8.7% annual growth rate. Current monthly costs could more than double for states facing the highest risks from extreme weather.

“The links between climate change, extreme weather and insurance costs will likely remain for the foreseeable future,” Deloitte wrote.

The escalating costs stem from the increasing frequency and severity of extreme weather events due to climate change. These events can cause significant damage to properties, leading to higher claims and, consequently, higher premiums for commercial real estate owners.

However, the report also suggested a potential solution. By investing $3.35 billion in residential dwelling resiliency measures, insurers could make two-thirds of non-code-compliant homes more resistant to weather damage. This investment could potentially save the insurance industry as much as $37 billion by 2030 in reduced weather-related claims.

“The seismic shifts we will see in financial services as a result of emerging technology and innovation will likely be transformative and provide new opportunities for growth,” said Jim Eckenrode, managing director at Deloitte’s Center for Financial Services. “At the same time, financial services organizations will face new risks and resiliency challenges, including market volatility, impact from climate change, talent gaps and new regulations.”

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The report also explores other significant trends shaping the financial services industry, including the rise of in-app payments, the impending retirement cliff in the real estate industry, and the growing influence of artificial intelligence (AI) in finance.

While AI is expected to revolutionize areas like retail investing and portfolio valuations, the report also warned that it could amplify fraud risks.

Other key projections from the report included:

  • In-app payments on social media are expected to grow from $19.1 billion in 2024 to $94.5 billion in 2030, a 30% annual rise, as platforms become “storefronts.”
  • 59% of US commercial real estate executive leaders, around 761,000 people, will reach retirement age in 10 years, creating a “leadership cliff.”
  • Generative AI could become the primary source of investment advice for 78% of retail investors by 2028.
  • GenAI-enabled fraud may cause $40 billion in annual losses for US banks by 2027, up from $12.3 billion in 2023.
  • Insurers could write $4.7 billion annually in global AI insurance premiums by 2032, an 80% growth rate.
  • Up to 25% of private equity firms may use AI to augment portfolio valuations.

“As financial services firms face an ever-changing landscape, they should think about what’s on the horizon,” said Monica O’Reilly, vice chair of Deloitte & Touche. “Market pressures and emerging risks, as well as new growth opportunities, will shape business strategies, and financial services firms should prepare for that now.”

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