Throughout 2024 and into 2025, property insurance has become one of the fastest-rising operating expenses in real estate. Rising insurance costs have surged across multiple states, driven by climate-related losses, higher replacement costs, and carrier retreat. For investors, this shift is more than a simple line-item update—it is fundamentally reshaping underwriting standards. To see how these underwriting changes affect deal financing, review our Fix & Flip Loan Programs and DSCR Loan Options.
Why Insurance Costs Are Rising
Insurance carriers are increasing premiums due to several converging market forces:
- Climate-related losses: Severe weather events have driven historic claim payouts.
- Higher replacement costs: Labor and material inflation have pushed RCVs up substantially.
- Carrier retreat: Many insurers are exiting high-risk regions or reducing coverage options.
- Portfolio rebalancing: National carriers are recalibrating exposure to catastrophic risk.
How Higher Premiums Are Changing Underwriting in 2025
1. Expense Ratios Must Be Recalibrated
Insurance that once represented 4–7% of operating expenses now represents 10–20% in many areas. Investors must update expense assumptions and stress test scenarios to avoid overly optimistic pro formas. For underwriting guidance tailored to active investors, explore our Real Estate Investing Blog.
Key adjustments include:
- Increase insurance estimates 15–35% based on market.
- Update replacement cost values to match current materials and labor.
- Model two scenarios: current rates and projected increases.
2. Lenders Are Tightening Requirements
Lenders are adjusting underwriting to account for insurance volatility. Requirements commonly include higher minimum coverage limits, additional endorsements, and proof of borrower reserves. If you’re preparing for a 2025 acquisition or refinance, review our Cash-Out Refinance Loan Programs for updated lending criteria.
3. Cash-on-Cash Returns Are Compressing
Higher premiums reduce NOI, affecting debt capacity, DSCR thresholds, and overall cash-on-cash returns. Modeling these changes accurately is critical—especially for investors pursuing rental portfolios through DSCR financing.
Strategies Investors Are Using to Offset Rising Costs
1. Competitive Bidding Across Multiple Carriers
Investors are leveraging regional carriers, surplus-line carriers, and CRE-specialized brokers to source more competitive policies.
2. Increasing Deductibles Smartly
Raising deductibles lowers premiums, but reserves must be available to absorb potential claims.
3. Using Master Policies for Portfolios
Master policies can provide leverage across multiple properties, reducing per-unit insurance costs. For builders and developers, insurance structures also differ significantly—see our Ground-Up Construction Loan Programs for more detail.
4. Investing in Risk-Mitigation Upgrades
Insurers increasingly reward properties with preventative upgrades, including:
- Electrical modernization
- Roof replacements
- Water-leak mitigation systems
- Fire suppression systems
What This Means for Investors in 2025
Well-underwritten deals now require conservative expense assumptions, broader risk modeling, and strategic insurance planning. Investors who adapt quickly will continue to find profitable opportunities—despite rising premiums. To learn how we approach underwriting at PCI, visit our Why Work With Us page.
Conclusion
Rising insurance costs are not deal-killers—they are a new underwriting reality. Investors who update their models, strengthen lender relationships, and build operational resilience will be positioned to outperform in 2025 and beyond. You can explore more actionable content in our Real Estate Investing Blog Archive.