Severe weather is expected to make commercial property insurance more expensive and harder to come by.

Commercial Property Insurance – Extreme weather events, particularly in the last five years, are accelerating the exodus of major insurers from states such as Florida, Louisiana, and most recently, California, where some analysts say insurance coverage is almost non-existent.

With premiums skyrocketing and hard-to-find coverage, it’s no surprise that the financial burden of climate change will extend far beyond coastal states. In the last few weeks alone, Vermont, Pennsylvania, and other states have been inundated by catastrophic floods, while an unprecedented triple-digit temperature has threatened hundreds of thousands of people in Arizona, Texas, and Florida.

In Hawaii, the devastating wildfires of the past week have put more lives in danger and may increase costs even further.

This comes on top of a summer already marked by smoke-related health concerns from Canadian wildfires in many cities across the East and Midwestern United States.

As homeowners grapple with rising insurance costs and when they will be able to find affordable coverage due to increased severe weather, the same issues could affect the insurance of commercial properties and, eventually, the location and development of properties such as apartments, offices, and retail centers.

Commercial property owners are likely to pass on higher rates to tenants, likely through higher rents.

“Commercial tenants who lease space under a triple-net agreement, where they take on expenses like insurance, taxes, and maintenance on top of rent, would likely bear the brunt of any future insurance cost increases,” Michael Tachowski, principal partner and real estate damage economist at Laguna Beach-based Landmark Research, California, said in an interview.

This is already happening in California, as well as coastal and inland states like Rhode Island, as well as in Florida and Texas, where insurance companies have pulled out of the state after several devastating hurricanes in recent years.

Extreme Heat

Extreme heat is now leading to increased wildfire and other property damage risks in multiple regions, according to a report from Climate Matters. The report found that some of the largest temperature increases in the last 50 years were in Nevada, Idaho, Utah, and El Paso.

In July, Phoenix had its warmest temperature on record, at 102.7, according to Arizona climatologists.

Louisiana, which is prone to hurricanes, is offering millions in state subsidies to attract insurance companies back after a string of cancellations in the last two decades.

In Kentucky, flood insurance rates are on the rise after several severe storms hit the state last summer.

In California, wildfires have been devastating for six years in a row, after being much less common in recent years. Analysts say that other states with similar wildfire risks like Colorado and Oregon could face similar problems as insurance carriers dwindle and rates rise.

READ: Trisura reports higher insurance revenue for Q2

State Farm, the largest private insurer in California, announced in May that it will no longer offer new policies in the state for residential and commercial property casualty insurance, though it will continue to offer auto insurance. This announcement follows a similar decision earlier this year from rival insurer Allstate.

In a statement, State Farm attributed the California decision to “historical construction costs that have outpaced inflation, rapidly increasing catastrophe exposure and a difficult reinsurance market,” while Allstate cited similar reasons in a public statement.

In addition, weather-related disasters across the country have caused a sharp rise in reinsurance premiums, which insurance companies buy from outside providers to protect themselves from losses from unexpected events that affect commercial and residential properties.

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