It’s no secret that insurance costs for commercial real estate have been rising significantly for many across Europe, in turn impacting net operating incomes for many property owners.

There are many factors at play to explain the surge in higher premiums, including expensive and scarce reinsurance, inflation, and regulatory restrictions.

However, the increasing commercial insurance rates also reflect a growing recognition of the realities of physical climate risk that are making extreme weather events such as flooding and wildfire more destructive.

Extreme weather events in Europe and their cost

Most recently, Storms Bert and Caetano have battered northwestern Europe, causing flooding in many parts, while just a few months ago, Storm Boris wreaked havoc and caused severe flooding across central Europe. Storm Boris is likely to prove one of the region’s most costly extreme weather events on record, with insurers estimating claims of up to €3 billion. The devastating scenes witnessed during the severe flooding in Valencia, Spain looked like something out of a disaster film.

But these events are happening in real life and causing significant disruption to livelihoods and economies.

According to the European Central Bank, only a quarter of the EU’s climate related losses from disaster are insured, and there is a real danger of a significant and widening protection gap across the built environment that will risk financial stability and affect credit provision up to about €370 billion.

In response to the severe flooding, the European Commission president Ursula von der Leyen made a pledge to make available up to €10bn of recovery funds.

Addressing risk and resilience

The implications for an industry already navigating a challenging economic environment are significant, and it’s clear we need investment strategies and asset management solutions to address these financial risks and their consequences, to make informed decisions and ensure portfolio resilience.

Recently, ULI and Heitman collaborated on Insurance on the Rise: Climate Risk and Real Estate Investment Decisions, which provides an important basis for navigating these new challenges and provides actionable insights into this evolving landscape.

This new report explores many strategies to secure more affordable insurance coverage, highlights investment considerations that can make an asset or portfolio more attractive to insurers and examines emerging trends that may reshape the market in future.

Creative and strategic solutions

For investors to maintain profitability and build portfolios that attract more affordable insurance, they must consider physical climate risk strategically in their investment decisions and asset management plans as well as identify creative insurance coverage opportunities.

The research identifies risk aware investment strategies such as factoring in asset and market exposure to physical climate risk, growing portfolio size and geographic diversity, and implementing asset scale resilience measures to reduce identified risk.

It then blends them with creative insurance solutions, including opting for higher deductibles or aggregate deductibles, combining coverage from multiple providers, leveraging parametric and/or excess and surplus line coverage, and employing self-insurance, self-insured retentions, or captives.

With a higher frequency of weather-related incidents, for investors to successfully maintain portfolio resilience it’s clear that insurance alone can no longer provide the sole approach to managing risk: a strategic, blended approach to physical climate risk must be part of the solution.

Find out more and continue the discussion!

Download Insurance on the Rise: Climate Risk and Real Estate Investment Decisions from ULI Knowledge Finder.

Join us for our Webinar: Climate Risk and Insurance implications for real estate on 26 February 2025.  Moderated by Lindsay Brugger, Vice President of Urban Resilience at ULI, the webinar which brings together industry leading executives and key stakeholders across the real estate sector to share their thoughts and perspectives on the issues around the insurance and financing of real estate from climate risks. Register here.