I hate to do this, but we are going to need to get political today. We will need to discuss insurance and self-storage.
Part of our job as owners and entrepreneurs is to look at what is going on now, extrapolate some data, and then make predictions about the future to some degree so we can make moves today.
And in my opinion, it doesn’t look good for insuring self-storage projects. In fact, it looks ugly.
So this brings us back to my opening statement, we are going to get political in this episode, at least philosophically political.
The Challenge
First, let’s talk about the challenge.
It’s called climate change.
No matter what your political views, there is no denying that the weather patterns on this planet are changing. Or to say it more softly, perhaps, no one in the Insurance Company boardrooms is having any debate on this.
They are deploying sophisticated computers, AI, and quantum computer projection models to anticipate future weather patterns based on the ample data they are able to input from recent years.
And it doesn’t look good.
- Between 2000 and 2009, in the US, there were 67 billion dollars’ worth of “weather and climate event disasters.”
- That is an average of 6.7 events per year during that decade.
- Between 2010 and 2019, there were 131 billion dollars’ worth of “weather and climate event disasters” in the US.
- That is an average of 13.1 events per year during that decade.
- More than double the previous decade.
- Between 2020 and 2024, in the US, there were 115 billion dollars’ worth of “weather and climate event disasters.”
- That is an average of 23 events per year just during the first four years of this decade.
- It is anticipated to go up each year.
Another interesting fact:
- In 2025, the average commercial insurance premium went up by 9% to 15% over 2024, depending on where one gets their data.
- In areas that are hurricane-prone or wildfire-prone, this can be much higher.
I am having to upgrade the Storage World Analyzer to allow for different operating expenses to inflate and different rates each year, thanks to insurance inflation. I am not sure who to bill for this.
- I am also rolling out lots of other upgrades with this new version, including being able to upload unit mixes and/or offering memorandum and have unit mix populated, among other things, so I’ll just absorb the cost of this upgrade.
The Question
As I look to the future and develop my strategy for the next few years, I am trying to determine which part of the country to focus on and how to project the numbers.
This brought me to a political philosophical question:
- What is the role of the government in property insurance matters?
Or perhaps we could simplify the question to simply:
- What is the role of government?
And given the polarization of political views today, I know I am on thin ice, but let’s dance anyway.
An Answer To The Question
Fortunately (in my opinion), I received what was called a “liberal education” in the 1960s and early 70’s (the word “liberal” wasn’t a bad word then).
Back then,” liberal education” meant we studied areas like social science, political science, and literature as well as English, math, and science. The goal back then was to create well-rounded people for a “modern society.”
It may or may not have worked in my case.
I grew up with the idea, right or wrong, that the role of government is to solve problems for citizens that the private market cannot solve.
No teacher actually said that, as I can remember, it is just what I pieced together.
Like fire protection, that sounds like a safe example.
How would you like to have different fire departments sending you emails, texts, and calling you on the phone seeking your business so that if your home caught on fire, they would be the ones coming to the rescue?
What if your neighbor refused on political grounds (a freedom to burn movement), or couldn’t afford to have a fire department service, and their house caught on fire, and your house caught on fire because no one would show up to put their fire out?
You could also project this concept onto police protection or roads, or a host of other related services needed for society to function.
Some people think health services should be in this category, but that is another episode for another author.
But let’s do talk about property insurance.
What Do You Do?
Here is a scenario that has already happened to many homeowners in Florida and California.
Let’s say your storage facility is in Louisiana or Florida, and your insurance carrier says they are not going to renew your property insurance policy.
Not only are you exposed financially, but you are now in violation of your loan covenants, and your lender is hinting at threatening foreclosure (they are probably having a hard time finding a carrier, too).
So what would you do?
Many homeowners already face this, and many more are going to in the future.
It could be a reality for our industry as well. Perhaps it already is for some.
Possible Solutions
If anyone knows of a market solution to this issue, share it.
The person or company that can provide solutions to this problem is most likely worth investing in.
I think our elected officials will soon be addressing this because, unlike health insurance, which, if they serve in the House or Senate, they have access to high-quality health insurance for life, they get no such property insurance coverage. Many members own investment real estate or at least second homes in coastal areas, so perhaps they will react swiftly.
Well, on second thought, probably not.
However, this will be a topic that receives a lot of press, and people will use a significant amount of bandwidth to attempt to find a solution, due to the disruption it is going to create to the economy.
As an industry, I would love to see us get ahead of it and begin to formulate strategies and suggestions that could be a positive contribution to the dialogue.
First, we could as an industry determine what we think the role of government could or should be.
Let’s say we do end up agreeing that the role of government is to solve problems for citizens that cannot be solved by the private market. Here may be some potential forms of government solutions suggestions:
- Expanding Existing Programs: The federal government could expand its role in the disaster insurance market by directly selling coverage for wildfires or other natural disasters, similar to how the National Flood Insurance Program (NFIP) currently operates.
- In the current political climate, we appear to be moving in the opposite direction from this, but remember, politicians and movements come and go. It may be that “This too shall pass.”
- Government-Backed Reinsurance: The government could provide reinsurance coverage to private insurers for specific loss exposures, especially for catastrophic events. Almost like SBA does for SBA self-storage loans. This could stabilize the market and ensure private insurers can continue offering coverage.
- Subsidizing Insurers: The federal government could subsidize insurance companies, particularly after disasters, to help maintain the affordability and availability of property insurance. We sure did it with many financial institutions that were “Too big to fail.”
- Direct Insurance Programs: Some propose a new federally chartered entity focused exclusively on covering catastrophic risks associated with natural hazards, akin to Fannie Mae and Freddie Mac in the mortgage market.
- Supporting State Programs: States already have “insurers of last resort” like Florida’s Citizens Property Insurance Corporation (which I have used) and the California FAIR plan, which provide coverage when private options are unavailable. These programs may require greater support to meet the increasing demand. At least in Florida, Citizens now insures fewer properties than it did five years ago.
However, life is a tradeoff, and it is very true when considering increasing the government’s role in avoiding the upcoming insurance disaster. Here are some of the challenges and considerations:
- Cost to Taxpayers: A larger government role in insurance would likely incur significant costs to the federal government, ultimately impacting taxpayers.
- Market Distortion: Government-backed programs or subsidies could potentially distort the private insurance market.
- Fairness and Equity: Questions of fairness and equity arise when considering how costs are distributed, especially if taxpayers in less-affected areas subsidize losses in high-risk regions (I hear the thin ice creaking under my feet).
- Addressing the Underlying Risk: While government intervention may provide temporary relief, long-term solutions require addressing the fundamental drivers of rising insurance costs, such as inflation, climate change, and development in certain parts of the country.
Conclusion
What are your thoughts?
Even if you are in South Dakota, what is happening in Florida will have an impact on your self-storage insurance cost.
As an industry, I think it is time we started playing a more proactive role in shaping the future potential solutions.
What do you think the role of government is, if any?
Thanks for getting this far in this episode, and perhaps you have ideas for a market solution.
Just let us know.
