2023 Fall Issue of Urban Land - 130

Figure 2. Distribution of insurance expense CAGR (2017-2022) for
multifamily properties compared to the other four primary property types*
* National average CAGR shown in middle of charts.
Source: Moody's Analytics CRE.
multifamily are growing fastest among these
five property types.
Metros with the highest CAGRs for insurance
premiums in the past five years are
spread across the nation, with Texas, Sun
Belt, Northeastern, and California metros
tending to be on top. When comparing insurance
expense CAGRs to rent CAGRs, insurance
expense increases tend to outpace
rent increases, offering some indication that
revenue is not increasing at the same pace
as insurance expense. For example, the top
20 multifamily metros for insurance expense
increases range from 12.4 percent to 17.3 percent,
whereas their rent CAGRs in the same
period range from 2.8 percent to 7.7 percent,
according to Moody's Analytics.
Several factors are driving skyrocketing
prices in the insurance industry, including inflation,
regulation, market structure, and climate
change. Inflation increases the costs of materials
and rebuilding, leading to higher claims.
Social inflation, including litigation risk and
other factors increasing the costs of claims
above economic inflation, also contributes.
Insurers rely on reinsurance-essentially insurance
for insurers-which also faces similar
pressures and rising rates, which reinsurers
pass on to insurers.
Some insurers are choosing to pull out of
whole markets, which reduces competition,
further contributing to limited supply and
high prices. For example, State Farm will no
longer write new home or business property
insurance policies in California, and Allstate
stopped selling new homeowners insurance
policies in the state in 2022. In recent years,
dozens of insurers have pulled out of Louisiana
and Florida, or have gone insolvent.
The climate connection
The data generally shows that insurance premiums,
following the same pattern as extreme
events, are trending upward in recent years
(Fig 3). A deeper look at the rate of change
of insurance premiums does not show a correlation
with exposure to climate hazards,
according to Moody's Analytics. Such data
suggests that risk exposure is not yet priced
in a systematic and consistent way.
However, there does appear to be a correlation
between assets' exposure to hurricanes
and the insurance premiums of those assets.
Moody's Analytics found that when grouping
assets based on their average annual
damage estimates from hurricanes, based on
Moody's RMS data, the highest risk buckets
tend to have the highest insurance premiums.
Although insurance premiums are often sized
130
URBAN LAND FALL 2023

2023 Fall Issue of Urban Land

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