The Uninsurable Future: How Climate-Driven Insurance Risk is Reshaping Real Estate
The Canary in the CRE Coal Mine
If insurance is the canary in the coal mine for climate risk, then the bird has stopped singing. That's the warning from Dave Jones, former California Insurance Commissioner and current Director of the Climate Risk Initiative at UC Berkeley. In a conversation that touches on reinsurance markets, mortgage delinquencies, lender behavior, and regulatory dysfunction, Jones laid out the most sobering climate-related CRE risk analysis to date: we are already living through a systemic insurance crisis—and commercial real estate is not exempt.
"We are marching steadily towards an uninsurable areas in this country," Jones warns.
From Homeowners to High-Rises: What the Data Shows
Much of the early distress has been observed in the residential and small business markets, where data is more publicly available. A study by the Dallas Fed, cited by Jones, found a direct correlation between areas hardest hit by climate events and surging insurance premiums, non-renewals, and mortgage delinquencies.
But commercial real estate isn't insulated. While pricing data is less transparent due to looser filing requirements, Jones states, "everything that I've seen indicates that those [commercial] rates are going up too," particularly in regions where catastrophic climate events are becoming more frequent and severe.
Take Florida. One of our clients' office tower's premiums jumped from $300,000 to $1.2 million in a single renewal cycle. That's straight off the bottom line. The hit is entirely non-accretive; it's pure cost.
The Feedback Loop: Insurance, Lending, and Liquidity
As insurance availability shrinks and prices soar, lending dries up. Lenders want to see that there is property and casualty insurance yet, as it becomes harder to get, that has implications in credit markets… and flow-through implications to the real economy.
It's not just anecdotal. Jones references studies showing that banks are offloading loans insured by lower-rated, higher-risk insurers to Fannie Mae and Freddie Mac, effectively shifting the risk onto taxpayers. That means if a hurricane hits and the house is knocked down, there isn't insurance available, potentially because the insurance company went insolvent.
The trend is clear: insurance stress is bleeding into credit markets and weakening the foundations of the entire real estate financing stack.
The "Deregulation" Illusion
Some states, like Florida, are trying to respond by loosening regulatory constraints to attract insurers. Jones is skeptical. "Florida rates are four times the national average," he says. The state has adopted taxpayer-funded reinsurance schemes, weakened litigation protections, and allowed less-robust rating agencies to operate.
Still, "the national branded home insurers are not writing in Florida… they can't make a profit," says Jones. "So even with all these changes, the background risk is too great."
In short: deregulation cannot solve a fundamentally unprofitable underwriting environment driven by climate volatility.
Adaptation Isn't Being Priced In - Yet
Jones is more optimistic about resilience measures. Home hardening, defensible space, and forest management, especially in wildfire-prone states like California, can materially reduce losses. Commercial insurers often have engineering staff to assess and recommend these strategies.
But the industry hasn't kept pace. "Insurers, by and large, are not accounting for property, community, and landscape-scale adaptation and resilience in their models," Jones says. One exception is Colorado, which passed a law requiring insurers to factor in proven risk mitigation.
This could prove to be a model for commercial markets, but it's early and insurers remain price takers in the face of mounting losses.
From Reinsurance to Municipal Bonds: Signals to Watch
What market signals should CRE investors monitor? Jones suggests:
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Insurance pricing and non-renewals: leading indicators of distress.
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Reinsurance costs: though recently softening, they've trended upward for years.
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Lender behavior: especially offloading risky loans to agencies.
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Rating agency downgrades: particularly for municipalities facing severe climate risk.
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Housing market mispricing: First Street Foundation estimates as much as $1 trillion in residential overvaluation due to underpriced climate risk.
Any of these could tip the balance in specific markets or signal a broader inflection point.
A Slow Collapse or a Sudden Shock?
Is this a long-term crisis or a fast-moving one? "It's happening in real time now," says Jones. "It's more likely that this will be a steady glide into uninsurability… as opposed to one catastrophic event that brings the whole house of cards down."
Still, the metaphor is chilling. The systemic risks posed by climate-driven insurance failure are already manifesting across sectors. Whether the collapse is gradual or sudden, the endpoint is clear.
"There is no place in the United States where you have a 'get out of climate change free' card," Jones warns.
For CRE professionals, that means a hard reckoning is ahead – not just with climate, but with underwriting, capital access, and portfolio risk in a fundamentally altered landscape.
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