Climate Change & Real Estate: How Adaptation Reduces Insurance Costs

Climate change is profoundly impacting the real estate industry, leading to an increase in insurance costs and rendering some properties in high-risk areas uninsurable. As the rise in global temperatures increases the frequency and severity of natural disasters, it leads to higher insurance claims and premiums. This article examines the relationship between climate change and real estate insurance costs, as well as the adaptation strategies that can help mitigate climate risk and reduce insurance costs in the real estate sector.

Climate change is having a profound impact on the real estate industry, as damaged or at-risk properties lose value and become less attractive to insurers.

This is because rising global temperatures are exacerbating the frequent and severe natural disasters, such as hurricanes, wildfires and floods, which in turn drive up insurance claims and premiums.

For example, as insured losses were expected to cross $50 billion from both hurricanes Helene and Milton in the US, Mark Friedlander, Director of Corporate Communications at the Insurance Information Institute (III) warned that "[For Hurricane Helene alone] many people filed claims with their property insurance.

Those claims most likely will be denied because it is clearly a flood damage, not a wind damage loss".

This also implies that most US insurers are unprepared to anticipate and adapt to devastating events, and are either pushed to exit the market in at-risk areas or choose to increase the price of coverages.

There are also other key factors to consider when examining why climate change is increasing insurance costs:

• Mounting Climate-related disasters affect rising repair and replacement costs

  With rising climate-related disasters, the cost of repairing and replacing damaged properties is also likely to increase. This is because the materials and labour needed to repair and replace properties are becoming more expensive, and increasing the overall cost of insurance claims.

  For instance, according to the Insurance Information Institute, cumulative replacement costs for home repair surged 55% between 2020 and 2022, outpacing inflation and resulting in higher insurance premiums for households.

  As climate risks escalate, the repair costs are likely to worsen for unprepared property investors.

• Rising disasters affect the demand for insurance coverage in high-risk areas

  As people continue to move to or reside in high-risk areas, such as coastal regions or areas prone to wildfires, despite the increasing frequency of climate disasters, the demand for improved insurance coverage is rising.

  This is pushing insurers to impose higher premium costs on policyholders.

  Additionally, many insurers in the US have limited their activities in high-risk areas, such as California, resulting in "insurance deserts" and increasing demand for more affordable insurance coverage.

This is why exploring the relationship between climate adaptation and insurance is now critical for investors.

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Real estate climate risk is becoming a key factor in determining the insurability and cost of coverage for properties in high-risk areas.

More common climate-related disasters are pressing insurance companies to reassess the risks associated with properties and locations. This is also signalling a shift in real estate insurability, as some properties (mostly in high-risk areas) are becoming uninsurable or facing significantly higher premiums. Between 2018 and 2023 in the U.S., home insurance rates increased by 34%, and experienced a rise of 11% in 2023 alone. Additionally, a study by economists Philip Mulder and Benjamin Keys revealed that extreme weather risks are causing insurance premiums to surge, with projected increases of $700 annually by 2053 for households in climate-vulnerable areas. This growing divide between climate change and real estate insurability is forcing shifts in both property value and lending policy.

This also means that:

• As insurance companies reassess property risks amid growing climate-related disasters, some areas, particularly high-risk ones, are becoming more expensive or difficult to insure. This will also affect property values and affordability more severely.
• With more properties in high-risk areas becoming uninsurable or facing higher premiums, homeowners and investors may struggle to secure coverage. As a result, this will leave them vulnerable to financial losses from climate events.
• The increasing challenge of securing affordable coverage in disaster-prone areas will continue to influence climate risk consideration in real estate investment and development decisions. This momentum can potentially reshape the market and impact local economies.

As a real estate investor, you can reduce insurance premiums by adapting your properties and implementing robust strategies.

According to Trent Bryson, Insurance Expert and CEO of Bryson Financial, proactive measures like disaster-proofing, regular maintenance, and strategic insurance planning can help reduce insurance costs and mitigate risks for property owners and investors.

These actions are examples of climate adaptation and insurance alignment, showing insurers that you are taking proactive steps to manage risk.

In general, effective strategies could include:

• You can install resilience measures such as sea walls, levees, and storm shutters, which can also demonstrate to insurance companies that your properties are lower-risk, resulting in lower premiums. Additionally, using climate-resilient materials and designs can also help reduce insurance costs.
• You can use climate-resilient materials and designs that are resistant to climate-related damage, which can help you reduce the risk of damage to your properties. This can lead to lower insurance premiums, as insurers view your properties as lower risk.
• You can conduct regular property assessments and maintenance, which is helpful to identify potential vulnerabilities. Doing so can also help you reduce the risk of damage from climate-related events, and as a result, lead to lower premiums.
• You can install smart home technologies that can help monitor and respond to climate-related events. This can result in reduced damage risk to your properties and ultimately lower premiums.

When you invest in climate-resilient properties, you can lower repair costs and reduce the risk of financial losses.

A recent study by the US Chamber of Commerce and Allstate suggests that investing in climate-resilient properties can help you save up to $13 in economic impact and repair costs for every dollar spent on resilience.

This implies that, although investing in climate-resilient properties will not stop potential losses, you can considerably limit harm to your investments and maintain positive returns.

Aside from reducing the risk of damage and costly repairs, climate-resilient properties are designed to be safe and secure, making them more attractive to potential buyers and renters.

Homebuyers in the US, particularly among younger generations, are considering climate-resilient options.

A 2025 study shows that 50% of Gen Z and 56% of Millennials prioritise climate risks when deciding where to live, compared to 31% of Boomers and 40% of Gen X.

This means that climate-resilient properties located in at-risk areas could attract the younger American population, while maintaining and increasing their value over time.

Overall, the property's resilience, low repair costs, and reduced insurance costs are key factors in its attractiveness.

As the relationship between climate change and real estate evolves, resilience is becoming a key differentiator for property value.

Lenders are increasingly aware of the link between climate risk and insurance costs in real estate, and they’re adjusting expectations accordingly.

They want to ensure that properties are insurable and that borrowers have taken steps to address climate risks.

Simply put, here is what you should know:

• Climate risk assessment and resilience measures

  Lenders want to see that borrowers have assessed climate risks associated with the targeted property. Additionally, they want to ensure that borrowers have implemented measures to adapt to, address, and mitigate those risks.

• Property location and vulnerability to climate-related events

  Senders consider the location of a property and its vulnerability to climate-related events, such as flooding or wildfires. Properties in high-risk areas may be more difficult to insure or may require specialised coverage.

• Insurance coverage and premium costs

  Lenders consider the cost of insurance coverage for a property, as well as the associated premium costs. Borrowers may be required to provide proof of insurance coverage and the associated premium costs as part of the lending process.

To reduce climate risk in your properties and lower insurance costs, you can take several actionable steps.

These can range from implementing resilience measures to engaging with insurance firms and lenders. Precisely, you can:

• Conduct regular property assessments and maintenance

  Regular property assessments and maintenance can help you identify potential vulnerabilities and reduce the risk of damage from climate-related events. This process can also require the expertise of a climate risk expert like Climate X to better understand and anticipate your riskiness to climate-related impacts.

• Implement resilience measures

  Resilience measures, such as sea walls or storm shutters, can protect your properties from climate-related damage and reduce the risk of financial losses.

• Stay informed about climate-related risks and adaptation strategies

  Staying informed can help you make informed decisions about your properties and minimise the risk of climate-related damage.

• Engage with insurance firms and lenders

  Engaging with insurers and lenders can help you understand their requirements and expectations for climate risk management and reduction.

• Consider investing in climate-resilient properties

  Doing so can support climate risk reduction and help you prevent substantial financial losses, while also increasing the value and attractiveness of your properties.

• Investing in climate-resilient properties to boost attractiveness

  Investing in climate-resilient properties supports real estate risk mitigation and enhances long-term property attractiveness.

We know now that climate change impacts real estate insurance costs by driving up premiums through increased frequency and severity of climate-related disasters.

To combat this, you can apply various adaptation strategies as an investor or a property owner.

It is crucial to take proactive steps to reduce climate risk and lower insurance costs.

As such, you should consider implementing adaptation measures such as resilience construction, regular maintenance, and strategic insurance planning, individuals can demonstrate lower risk to insurance firms and lenders.

As a result, prioritising these measures can help you address the financial impacts of climate change and ensure better access to low-cost premiums by investing in climate-resilient properties.

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