The New Silent Killer of Commercial Real Estate Deals: Hazard Insurance

Why Hazard Insurance Is Killing Commercial Property Underwriting, and What to Do About It

Insurance premiums used to be a line item. Now they’ve become a landmine.

Over the past year, I’ve seen policies jump by 300% to 500%, even on clean deals with no claims and no red flags. The result? Acquisitions are collapsing. Refinances are getting gutted. And lenders are tightening up across the board.

Two deals. Two clients. Two weeks apart:

• One was finalizing a 50-unit purchase. The lender's replacement policy came back 4x higher than expected, the DSCR dropped below 1.0... The deal was dead.
  
• The other was midway through a cash-out refinance. The new insurance premium erased 60% of their expected loan proceeds.

Not because they made a mistake. Not because the properties were flawed. Just because the insurance market shifted, and nobody modeled the risk.

Why This Is Happening?

Hazard insurance isn’t stable anymore. It’s volatile.

Carrier exits, climate risk, and underwriting model changes have made pricing unpredictable, even in markets like the Midwest and Sunbelt suburbs. If you're still copying last year's policy into your pro forma, you're not underwritten. You're exposed.

What to Do About It When Buying or Refinancing

This isn’t something you can solve with a spreadsheet tweak. But it’s 100% manageable, if you treat insurance like a strategic variable, not a static cost.

1. Model multiple insurance scenarios 

Just like interest rates and exit cap rates. Best-case, mid-case, worst-case. If the deal doesn’t pencil at the top end, don’t move forward.

2. Don’t rely on the seller’s policy

You won’t qualify for their rate. Their policy could be legacy-priced, master-pooled, or flat-out outdated. Always quote your own structure.

3. Get a quote before you lock in

Bring in a multifamily-focused broker during underwriting. And if you're refinancing, have them model forward-looking pricing, not just today’s number.

4. Build real relationships with insurance pros

Skip the generalists. You need a broker who speaks lender language and knows how to structure coverage for multifamily assets.

How This Benefits You

This approach doesn’t just protect your downside, it makes you more credible.

Lenders will take you more seriously. Equity partners will trust your process. And you’ll underwrite more defensively in a market that demands it.

This isn’t about fear. It’s about professionalism. And it’s quickly becoming the new standard.

What Do You Think?

If you could ask one question to an insurance broker this year, what would it be?

Trevor Calton is a 25+ year veteran of commercial real estate and mortgage banking who has closed over $5B in acquisitions, $3B in commercial loans, and directed asset management for over 6,000 multifamily units. He is the founder of the Real Estate Finance Academy and Evergreen Capital Advisors, he serves as a trusted strategic partner for owners and operators navigating high-stakes capital decisions.

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