Rising Multifamily Insurance Costs in 2025: What Owners Need to Know

Developers, lenders, and owners are preparing for the next cycle. With the anticipation of interest rates coming down, inflation slowing, and an emerging gap in the multifamily market, owners are left to contend with where expenses will fall in 2025. In the last few years, insurance premiums and utility costs have placed disproportionate pressure on owners—accounting for 17% of total expense growth despite representing only 8% of total expenses.

The latter part of 2024 brought a brief reprieve on insurance pricing, but the sentiment is mixed for 2025. The catastrophic fires in Los Angeles, among the most destructive in California’s history, are likely to drive historic increases in multifamily insurance costs in 2025 while exacerbating the region’s housing shortage. Some experts caution that this relief may be short-lived, considering the recent Fall hurricane and early fire season in 2025. In contrast, others suggest that even significant storm-related losses may not dramatically shift multifamily insurance costs. Despite the sentiment, insurance, and utility costs are still higher than pre-COVID, eroding NOI for many owners.

Understanding the Impact of Rising Multifamily Insurance Costs

Before the pandemic, average multifamily insurance costs hovered around $30 per unit per month, but by November 2023, they had climbed to approximately $65 per unit per month—a staggering 119% increase over four years, according to RealPage. In 2024, Los Angeles premiums surged by 30% year-over-year, and estimates suggest 2025 could bring further multifamily insurance cost hikes, especially following the destruction of over 10,000 homes and structures in the fires. In certain markets, the figures were even more striking: in the West Palm Beach metro area, annual insurance costs soared to more than $1,800 per unit or $150 per unit per month.

These spikes contribute heavily to rising overall operational costs, pushing the average cost per apartment unit up by 33% year-over-year, reaching $180 per unit. This surge, coupled with a wave of market retrenchment as carriers reduce coverage, decline renewals, and exit what carriers believe to be high-risk markets, leaves apartment owners facing unprecedented operational burdens and few competitive insurance options. For example, as of late 2024, one in five homes in the Pacific Palisades was covered by California’s FAIR Plan, the insurer of last report, signaling insures’ retreat from high-risk areas.

As a result, NOI is under pressure, complicating debt options and making refinancing more difficult. The situation is especially challenging for affordable housing developers, who must contend with stricter insurer requirements, soaring deductibles, and higher premiums that impact their ability to supply much-needed affordable units. Without meaningful relief, the capacity to meet demand and sustain the sector’s long-term health is at risk.

Key Influencing Factors

Natural Disasters

Natural disasters are poised to shape the insurance landscape in 2025, with floods, hurricanes, fires, and earthquakes impacting the nation in 2024. For example, the devastating Los Angeles wildfires, estimated to cost $135 billion to $150 billion in total damages, are the costliest in state history and are expected to further strain the insurance market and drive premiums higher statewide. On average, natural disasters drive premiums two to three times higher, especially in states like California and Florida.

Outdated Infrastructure

Beyond environmental factors, older multifamily properties with outdated infrastructure face growing scrutiny, as antiquated electrical panels and other legacy systems make them riskier and more expensive to insure, pushing insurers to raise rates or avoid coverage altogether. Rebuilding efforts in Los Angeles will be further challenged by material shortages, permitting delays, and skyrocketing costs, with developers already operating under constrained conditions.

Crime Rates

Moreover, insurance practices increasingly consider crime rates, disproportionately affecting affordable housing developments and further elevating costs. While newer affordable housing constructions are somewhat insulated thanks to modern infrastructure that appeals to insurers, this protection still doesn’t entirely offset the challenges of development affordability without government subsidies.

Rising Utility Expenses

Meanwhile, inflation increased the cost of repairs, materials, and labor, and a shrinking reinsurance market compounds these costs, leaving apartment owners grappling with higher premiums. Compounding these pressures, apartment owners in places like Los Angeles must now contend with rising utility expenses, as updated waste management programs and elevated energy costs push electricity and trash service bills up by as much as 20%.

For older, master-metered properties, the inability to pass these escalating utility costs onto tenants only exacerbates the financial strain, making it increasingly challenging for owners to maintain a stable and growing NOI. Texas and Florida grapple with hurricane threats and flood zones so severe that some insurance providers have exited these markets entirely. At the same time, areas like the Midwest, though less prone to natural disasters, still contend with inflation-driven operational cost hikes.

Key Factors Impacting Insurance Cost Increases:

• Climate and Natural Disasters
• Building Age and Infrastructure Issues
• Crime Rates
• Energy Grid Issues
• Replacement Costs
• Property Values
• Drop in Carriers
• Inflation
• Rising Reinsurance Costs

Recent Market Developments

Fire risk remains a critical concern (especially in California) as new multifamily development often relies on wood-frame construction

Houston-based Camden Property Trust reported better-than-expected Q2 2024 performance due to a 3% decline in insurance costs. They marked a reversal from the 40% increase in 2023. Similarly, Memphis-based MAA achieved a 1% decrease in premiums when renewing its property and casualty program. This provided relief after years of steep cost hikes and it does not anticipate further declines in 2025. However, not all firms share this optimism—Chicago-based Equity Residential saw a 10.4% rise in insurance costs during Q2 2024.

The still-fragile property insurance market makes precise budgeting difficult for multifamily owners. While property rate increases have moderated, with most asset classes experiencing risk-adjusted property rate hikes of 0% to 10%, the multifamily factor faces challenges, especially in casualty insurance. Primary liability costs are projected to rise by 10% to 20%, while umbrella rates are expected to increase by 10% to 15%. Concerns about crime scores are driving heightened scrutiny from underwriters.

Impact on Property Values

Nationwide, multifamily property values have declined by 3.6% since 2019, with the South-Central region and Florida experiencing the steepest drops. Interestingly, regions like South Florida and California, have seen some of the most substantial increases in insurance premiums. However, their effect on value is less as rent demand and rent growth have mitigated the adverse effects on NOI. Comparing property values from 2023 to 2024, Los Angeles has experienced an approximate 1% increase, despite a modest decline of 0.73% since 2019.

Looks Ahead

While insurance costs have been a significant factor in property value declines, other drivers have played even larger role. For example, higher cap rates, rising vacancies, slowing rent growth, and higher interest rates. Encouragingly, these trends appear poised for reversal. Shrinking supply pipelines, strengthening renter demand, and above-average rent growth in many markets are likely to buoy values.

Mitigating Costs

Apartment owners have several proactive strategies to combat rising insurance and utility costs while enhancing their portfolios’ long-term health. Upgrading older infrastructure, such as replacing outdated electrical panels, can reduce fire risk and improve properties’ insurability. This will make them more attractive to insurance carriers.

Owners can also explore insurance options through multiple brokers, bundle policies for discounts, and adjust deductibles to secure competitive rates. Platforms like RealCoverage offer deposit insurance from as low as $8 per month. This can mitigate owner risk and streamline insurance management while improving resident satisfaction and retention.

Additionally, implementing Utility Management Programs, such as Ration Utility Billing Systems (RUBS), and investing in energy-efficient upgrades can lower consumption, protect NOI, and foster sustainable, resident-friendly communities.

Developers are also adopting climate-resilient materials and designs to protect properties from extreme weather and achieve financial and operational benefits. Innovations like fireproof steel balconies, durable stone façades, and dynamic smart glass enhance properties’ ability to withstand floods, wildfires, and intense heat. Although these materials involve higher upfront costs, they offer substantial long-term returns. These returns include lower repair and maintenance expenses, potential insurance premium credits, and improved energy efficiency.

Forecast for 2025 – What Apartment Owners Should Prepare for

The insurance market may begin to show signs of stabilization of properties situated outside of high-risk areas. Modest rate increases are anticipated for well-maintained, low-risk assets, even as ongoing challenges persist in regions prone to catastrophes. On the utility front, rates are expected to continue climbing, especially in large metro areas with aging infrastructure. Markets such as Los Angeles, where projected water rate increases, and sewer upgrades are poised to drive costs upward. Against this backdrop, apartment owners should remain vigilant and adaptable, preparing for evolving market conditions. Implementing comprehensive asset and risk management strategies will help maintain a stable NOI and foster long-term operational resilience.