Just as commercial real estate (CRE) began to recover from the impacts of COVID-19, the industry is now entering a new era of financial pressures. Driven by an uncertain economy, aging infrastructure, extreme weather events, and a more conservative insurance underwriting landscape, property insurance premiums are climbing at an alarming rate. In Q1 2024, commercial property insurance rates rose an average of 10.1%, following a staggering 20.4% jump in early 2023. The Deloitte Center for Financial Services projects that the average monthly insurance cost for a commercial building in the U.S. could soar from $2,726 in 2023 to $4,890 by 2030—an 8.7% compound annual growth rate.
These rising rates not only affect building owners; they trickle down to tenants, too. For instance, in triple-net leases, where tenants are responsible for paying all of the operating expenses for the property, they often shoulder a significant share of insurance costs. When premiums spike, lease renewals stall and prospective tenants could walk away altogether because the rent is too high. For building owners, this creates mounting pressures: increased expenses, reduced occupancy, and in some cases, diminished property value.
This is where smart building systems shine. Historically, building owners and operators have turned to smart technologies—such as LED luminaires, HVAC systems, motion sensors to track occupancy, and network controllers—to boost energy efficiency and meet sustainability goals. However, forward-thinking real estate executives are also starting to view smart building solutions as a strategic asset for risk mitigation and improving a property’s risk profile. This technology is appealing to insurers, and by extension, to the building’s tenants, especially in today’s evolving CRE market.
From Energy Efficiency to Risk Intelligence
Smart building technology helps reduce risk and lower insurance claims by giving facilities managers real-time control and visibility over building operations and potential issues before they occur or become bigger problems. As insurance carriers demand greater transparency and continuous risk monitoring, traditional loss-prevention tactics like periodic inspections or standard fire suppression systems fall short. The industry is shifting toward proactive, data-driven approaches that can detect issues early and prevent them from escalating into costly claims.
Through a myriad of sensors connected to operating systems and placed throughout the building, integrated with data analytics, smart building tech solutions actively monitor for conditions that signal trouble, such as excess humidity, sudden temperature changes, irregular equipment behavior, or electrical anomalies that could indicate a fire risk.
Water damage is among the most costly commercial property insurance claims, yet many buildings still lack even basic detection systems. As climate change brings more extreme weather—like hurricanes, snowstorms, and dramatic temperature swings—facilities managers can no longer rely on historical data to assess risk. Smart sensors provide real-time alerts when moisture is detected, and some systems can even activate automatic shut-off valves to stop leaks at the source. By catching problems early, owners can reduce what might have been a $50,000 claim to a simple $500 repair.
Consider this example where, after repeated snowstorms and fluctuating temperatures, a warehouse roof experiences repeated freeze-thaw cycles leading to an ice dam forming near a roof drain. As a result, water begins to seep down an interior wall due to hidden weaknesses in the building envelope, an issue that remains undetected until major damage occurs. With temperature and humidity sensors in place, those risk conditions could be flagged early, prompting preventative action and avoiding a costly insurance claim.
This is the kind of scenario we’re likely to see more of as stronger winds, frequent freeze-thaw cycles, and increased precipitation make buildings more vulnerable to water intrusion. As a result, building design is evolving to better withstand these intensifying weather events that in the past might have only taken place once in a decade. In the meantime, smart building technology is helping to bridge the gap.
Smart building technology can also help detect risks that unfold slowly, like conditions favorable to mold growth. Sensors that monitor temperature and humidity (often embedded in lighting systems or HVAC controls) can trigger alerts when indoor environments become conducive to mold, helping building operators intervene before costly repairs are needed.
The Data Advantage: Preventing Claims Before They Happen
The real value of smart building technology lies in its ability to turn facilities into dynamic, data-driven environments. When a networked connected building provides data insights in real time, it enables owners to spot issues early and prevent failures, giving them a significant advantage in both day-to-day operations and when working with insurers.
While some insurance providers, especially those operating in the residential market, are beginning to offer premium discounts for smart systems, the greatest financial benefit often comes from the claims that never get filed. Just like a minor car accident can raise auto insurance rates, even small property claims can impact long-term commercial premiums. Smart systems help facilities operators address issues before they escalate, keeping costs below deductibles or avoiding them altogether.
This is why insurers are increasingly favoring properties equipped with proven, tech-enabled monitoring solutions. Risk mitigation powered by real-time data creates a clear win-win: fewer claims for carriers and lower insurance costs (and fewer disruptions) for owners and tenants.
A Smarter Path Forward for CRE Owners and Operators
To turn buildings into smarter, more insurable assets, owners and operators can take advantage of modern smart building technologies that are easy to deploy and integrate into existing infrastructure. Here are key steps to get started:
- Adopt an intuitive, scalable smart building platform: Connecting lighting, wireless sensors, controls, HVAC, data analytics, and more into a single dashboard enhances building visibility, simplifies operations management, and enables faster, data-driven decisions.
- Use smart HVAC controls to monitor for freeze risks: Continuous monitoring of temperature fluctuations helps prevent equipment failure and burst pipes, reducing downtime and avoiding costly repairs.
- Integrate humidity and air quality sensors: Often built into lighting or HVAC systems, these sensors detect conditions that promote mold or poor air quality, enabling early intervention and healthier indoor environments.
- Leverage real-time data to reduce insurance costs: Demonstrating proactive monitoring and fast response capabilities can lead to lower premiums and preferred coverage.
- Enhance security with LoRaWAN sensors: Long range wide area network sensors provide wide coverage indoors and outdoors (where Wi-Fi often falls short), making them ideal for monitoring large sites and boosting security with real-time data.
CRE executives are increasingly recognizing that smart building technology is more than a tool for sustainability or comfort, but a strategic asset for managing rising insurance costs. As insurers become more selective, buildings that demonstrate risk readiness through features like leak detection and predictive maintenance gain a clear advantage. Smarter buildings aren’t just safer; they’re more financially resilient. And in today’s environment of climbing premiums, that’s not just smart—it’s essential.
Dan Hollenkamp is chief operating officer of Toggled, a provider of intelligent building management solutions.
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