Real Estate Insurance Cost Increase Analysis

Published by
Marc Rutzen
July 25, 2023
Real Estate Insurance Cost Increase Analysis

Real Estate Insurance Cost Increases by State

It’s no secret that multifamily operating costs have risen over the past few years, but some line items have clearly risen more than others. Insurance is one prime example.

People have heard a lot about insurance cost increases recently, but there hasn't been much analysis done on where the greatest increases are occurring. As you can see in the table below, on average, insurance costs have increased by about 27% from 2020 through the end of 2022, but that looks very different depending on which state you're in:

Table showing insurance cost increases by state 2020 - 2022

Louisiana experienced the greatest increase at 50.6%, based on the 111 properties surveyed there. And that's over only a 3-year period.

Florida and Texas were next, with 47.1% and 46.2% increases, respectively. That makes sense with the recent increases in extreme weather – hurricanes have been getting more frequent and more destructive, and sea levels continue to rise. Coastal cities certainly appear to have borne the brunt of the increases.

Near the bottom of the list were states like North Dakota and New Hampshire, where insurance cost increases were in the single digits. We didn’t survey many properties in those states, but from the data we have, the increases look very modest relative to Southern states.

Overall, the Midwest saw the lowest increases from 2020 – 2022 at only 21%, while the South experienced a 39.3% increase in insurance costs over the same time period. The Midwest definitely saw its fair share of expense inflation via real estate tax increases - but that's the subject of another analysis.

When I initially posted the insurance cost increase analysis on LinkedIn, people asked to see it adjusted for changes in asset values, given that property values have appreciated more quickly in the Southeast than other markets. The thinking was that strong growth in markets like Florida, Texas and Tennessee would make the insurance cost increases in markets like Louisiana and Mississippi look even worse in comparison.

While we don't have property valuation data (yet), I put together an updated table showing the percent increase in NOI for each state over the same timeframe. We also calculated how insurance costs as a percent of EGI changed for each state:

Table showing insurance cost increases by state with percent increase in NOI and increase in insurance costs as a percent of EGI

Florida, Texas and Tennessee definitely fared better than Louisiana and Mississippi because of their strong growth, but the increase in insurance costs as a percent of EGI in FL and TX was actually greater. Florida saw insurance costs as a percent of EGI rise by nearly 75%!

I'm no climatologist, but it seems clear that global warming is having an impact - and the effects on the bottom line are very real for real estate.

Property managers, investors, brokers and appraisers all use HelloData to analyze multifamily comps, optimize rents, and increase deal flow.

Marc Rutzen

Marc worked in real estate for 5 years before launching multifamily analytics startup Enodo, which he sold to Walker & Dunlop (NYSE: WD) in 2019. At W&D, he served as Chief Product Officer, developing products that helped source billions in loan volume. Outside of work, he enjoys reading, running, and spending time with family.

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