Insurance Is the Silent Killer of Deals—Here’s How to Get Ahead of It

In 2025, rising insurance costs are blindsiding real estate investors—and in many cases, blowing up deals that once penciled perfectly.

While interest rates and cap rates get most of the attention, property insurance is quietly eroding NOI and killing margins across multifamily and commercial assets. From Florida to California, premiums have doubled or tripled in some regions over the last 24 months.

If you’re not underwriting insurance aggressively—or building flexibility into your deal structures—you’re playing a dangerous game.

Why Insurance Is Skyrocketing

1. Natural Disasters Are More Frequent
   
   • Wildfires, hurricanes, and flooding events are no longer rare—insurers are pricing that volatility in.
     
2. Reinsurer Pullback
   
   • Global reinsurers are pulling capacity or increasing their own pricing, forcing primary insurers to raise rates or exit entire geographies.
     
3. Older Building Inventory
   
   • Aging multifamily stock and deferred maintenance increase risk profiles, which translate to higher premiums or nonrenewals.
     
4. Litigation and Claims Culture
   
   • Escalating repair costs and increased legal exposure are making insurers more cautious and expensive.
     
     

How to Get Ahead of the Insurance Risk

1. Underwrite Conservatively

• Assume premiums will rise—not stay flat. If you’re still using last year’s rates, you’re already behind.
  
• Model worst-case scenarios in your pro forma, especially in coastal or high-risk zones.
  

2. Get Binders Early

• Don’t wait until a deal is in escrow to price insurance. Loop in a broker early and get indicative quotes based on actual asset specs.
  

3. Work With a CRE-Savvy Broker

• Not all insurance brokers understand the nuances of multifamily and commercial investment. Look for those with deep experience in real estate underwriting and access to national carriers.
  

4. Consider Captives or Master Policies

• If you’re a portfolio owner, explore master policies or captive insurance models that give you more control over cost and claims.
  

5. Invest in Risk-Reduction Measures

• Mitigate premium increases by investing in items like:
  
  • Fire suppression upgrades
    
  • Impact windows
    
  • Roof replacements
    
  • On-site security
    
  • Regular inspections and preventive maintenance
    

Insurers want to see that you’re actively lowering risk. Show them.

Structuring Deals in a High-Insurance Market

If premiums spike mid-deal, here’s how to stay nimble:

• Use insurance contingencies during LOI or PSA negotiation.
  
• Add buffer in escrow reserves to handle future jumps.
  
• Renegotiate purchase price or terms if quotes come back above threshold.
  

Sellers are increasingly aware that insurance is blowing up financing—don’t be afraid to push back with real numbers.

Final Word

In today’s market, insurance isn’t a footnote—it’s a dealbreaker. Investors who fail to treat it as a major underwriting line item risk burning capital, losing deals, or tanking NOI post-close.

But with smart structuring, proactive broker relationships, and a realistic view of risk, you can stay ahead—and still find deals that work.

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