Real Estate Insurance: A Tale of Two Markets
The real estate insurance landscape is currently defined by a striking contrast. While property insurance rates are softening, offering relief to owners, casualty risks continue to present significant challenges and rising costs. This bifurcation, highlighted in a recent Lockton analysis, demands a strategic reassessment of insurance programs.
Property Insurance: A Buyer’s Market Emerges
Increased competition among insurers is driving down property insurance costs for real estate entities. This trend, observed over the past 18 months, is expected to continue. The softening is particularly noticeable for properties exposed to catastrophes, benefiting from excess reinsurance capacity and a relatively mild 2025 Atlantic hurricane season.
Rate reductions are becoming tangible across various asset classes. Non-habitational commercial properties like office buildings and retail spaces are seeing decreases of 5% to 10% on standard placements. Multifamily assets, especially those in catastrophe-prone areas, are experiencing even more substantial cuts – 5% to 15% for ground-up coverage and 20% to 30% on shared and layered structures. Even the hospitality sector is benefiting, with property rates stabilizing as competition increases.
Industrial properties, fueled by demand for data centers supporting artificial intelligence infrastructure, are also experiencing single-digit rate declines. Lockton anticipates these favorable conditions will persist through 2026, barring unforeseen industry-wide losses or major insurer consolidation.
Casualty Coverage: Navigating Rising Costs and Restrictions
The story shifts dramatically when examining casualty insurance. Liability pricing, both primary and excess, is consistently increasing across all real estate asset classes. This is largely due to growing concerns surrounding sexual misconduct liability and the resulting exclusions in general liability (GL) policies.
Reinsurers are driving the demand for these exclusions, which are now commonplace nationwide. Properties identified as high-crime areas by risk analytics providers may face sublimited or entirely excluded coverage. Habitational assets are facing the most acute challenges, with many insurers exiting the multifamily space, leaving remaining carriers to demand higher self-insured retentions and tighter terms.
Hospitality operators are also under pressure, with underwriters scrutinizing crime scores and emphasizing the importance of documented training and technology investments to prevent abuse and human trafficking. Umbrella and excess liability capacity is tightening, with lead layers of $5 million becoming standard and $10 million layers increasingly difficult to secure.
Adapting Insurance Strategies for a Bifurcated Market
Real estate owners must proactively adjust their insurance strategies to navigate this complex environment. Specialized policies addressing assault and battery and sexual misconduct exposures are becoming essential where GL insurers impose exclusions. Bifurcated insurance programs, isolating difficult-to-place risks at specific locations, can offer solutions for portfolios with scattered problem properties.
While cyber insurance and crime coverage remain competitive, real estate companies should prioritize manuscripted cyber policies tailored to their unique ownership structures. Crime coverage deserves particular attention given the rise in social engineering and invoice manipulation schemes.
Blended coverage approaches, combining directors and officers (D&O) liability with errors and omissions, employment practices liability, and cyber or crime coverages, can address complex risk profiles. General partnership liability for investment entities offers a cost-effective alternative to standalone D&O policies.
Pro Tip
Don’t rely on standard cyber policies. Real estate’s complex ownership structures often require customized coverage to ensure adequate protection.
FAQ: Real Estate Insurance in 2026
Q: Why is property insurance getting cheaper while casualty insurance is getting more expensive?
A: Increased competition among property insurers and favorable catastrophe loss experience are driving down rates. Meanwhile, concerns about liability claims, particularly related to sexual misconduct, are pushing up casualty costs.
Q: What are sexual misconduct exclusions?
A: These exclusions remove coverage for claims related to sexual misconduct, assault, and battery. They are becoming standard in GL policies due to reinsurer concerns.
Q: What can real estate owners do to mitigate rising casualty costs?
A: Consider specialized policies for excluded risks, explore bifurcated insurance programs, and prioritize risk management practices like employee training and security investments.
Q: Is the softening property market expected to last?
A: Lockton anticipates these conditions will remain stable through 2026 unless significant industry losses or insurer consolidation occur.
Learn more about navigating these market dynamics by visiting Lockton’s full report.
Have questions about your real estate insurance program? Share your thoughts in the comments below!
