Rising Insurance Costs for Multifamily Housing Units – Proactive Strategies

Insurance costs for multifamily housing units have surged dramatically, with the average annual insurance cost per unit rising from $502 in 2021 to $777 in 2024, marking a 55% increase, according to the National Apartment Association.

This upward trend in insurance premiums is becoming a major concern for property managers as it directly impacts net operating expenses and revenue objectives. As John A. Jacobsen, CEO of Final Analysis, highlighted in a recent webinar by the Institute of Real Estate Management, the situation demands urgent attention. Despite a profitable 2025 for property and casualty insurers, with $68.7 billion in underwriting income reported, coverage reductions have pushed property owners and managers to consider rent hikes as a countermeasure.

Regional Disparities in Insurance Costs

The rise in insurance premiums is not uniform across the United States. The National Association of Insurance Commissioners indicates that the Western region faced a striking 43% increase from 2018 to 2024, while the Midwest and Southeast regions experienced increases of 25% and 27%, respectively. This varying impact compels insurers to enforce stricter conditions on policies, focusing more on individual property attributes like building age and structural integrity.

Challenges in Claims and Coverage

Frequent severe weather events, rising construction costs, and aging infrastructure contribute significantly to rising insurance costs. Insurers are becoming more selective, with some demanding early roof replacements at the cost of the policyholders. Water damage coverage, in particular, is facing new restrictions, often requiring costly endorsements. Jacobsen also notes the increasing role of alternative dispute resolutions, which often favor insurers, making it challenging for policyholders to contest claims. Additionally, anti-public adjuster endorsements complicate claim management for property owners.

Alternative Insurance Strategies

Given these challenges, Jacobsen suggests multifamily property owners explore self-insurance, especially when properties are owned outright. This can involve assessing applicable regulatory mandates and ensuring sufficient reserves. A hybrid strategy might involve self-insurance up to a set threshold, with additional coverage for significant claims and legal fees. These approaches could provide cost-saving opportunities, especially in negotiation scenarios.

Proactive Measures for Property Managers

• Seek competitive quotes from multiple insurers to find optimal coverage
• Stay informed about ongoing claims to navigate complexities effectively
• Monitor for gradual industry changes that may affect coverage availability
• Consider hybrid or self-insurance strategies for better cost management

Jacobsen warns that the insurance industry's slow pace of change means coverage limitations might persist, with premium prices unlikely to return to earlier lows. By being proactive and informed, property managers can better prepare for the continued landscape of rising insurance costs.