Insurance Shrinkflation Is Costing You—And Tax Assessors Aren’t Accounting for It

New York commercial property owners are facing a growing financial burden in 2025: skyrocketing insurance premiums and shrinking coverage that fails to keep pace with actual rebuilding costs.

This isn’t just an increase in expenses—it’s shrinkflation in action. Property owners are now paying double or more for insurance while getting less coverage in return. Despite this, property tax assessors continue to rely on outdated assumptions about insured values, failing to account for massive premium increases and coverage shortfalls.

The result? Many commercial property owners may be overpaying on property taxes because these changes are not reflected in their assessments, even as they absorb higher expenses and greater financial risk.

Beyond Higher Costs: The Underinsurance Problem

While rising premiums are squeezing property owners, the bigger problem may be inadequate coverage. Many commercial properties no longer have enough insurance to cover full rebuilding costs. The gap between insured value and actual replacement cost is growing, and tax assessors aren’t accounting for this reality. Property tax experts understand this issue and make it a key argument in valuation disputes.

For example:

• A warehouse previously insured for $50 million may now require $70 million to rebuild due to escalating material and labor costs.
• This $20 million shortfall represents a real loss in property value—one that should be reflected in a lower property tax assessment.
• Yet, many assessors continue to assume insurance values remain stable, leading to inflated property tax liabilities.
• Property tax experts cannot let this stand and must present this crucial evidence.

This issue is especially concerning given the impact of natural disasters on insurance rates. After Hurricane Sandy, commercial properties in high-risk flood zones saw a 1.5% to 3.5% decline in transaction prices for every one standard deviation increase in flood surge levels.

This demonstrates how insurance costs and risk exposure directly influence property values—something assessors need to acknowledge or be convinced of this critical point.

The Hidden Shrinkflation of Commercial Property Insurance

Property owners are now facing a shrinkflation effect in commercial insurance—paying more while receiving less coverage.

• Higher Premiums, Less Coverage: Policies that once provided full replacement value are now subject to stricter limitations, exclusions, and higher deductibles—often without owners realizing it until a claim is filed.
• Policy Exclusions Are Expanding: Many insurers are reducing coverage for flood, wind, and fire damage, leaving property owners responsible for gaps in rebuilding costs.
• Co-Insurance Penalties: Some property owners find themselves underinsured due to rising replacement costs, triggering co-insurance penalties that reduce the amount insurers will pay out.

Property owners are absorbing more financial risk while still being taxed as if they are fully covered. If insurance companies recognize the increased risk by reducing coverage, tax assessors should recognize it too—by lowering assessments.

A Look at the Numbers: Insurance Costs Are Climbing

Recent data shows a steep rise in insurance premiums across various commercial property types:

• Office Buildings: Premiums have doubled from $50,000 to $100,000 per $10 million in coverage.
• Industrial Facilities: Costs have surged to $75,000-$150,000 annually for $10-$50 million in coverage, up from $50,000-$100,000.
• Warehouses: Premiums now range from $30,000-$75,000 for $5-$20 million in coverage, compared to $20,000-$50,000 previously.

These 50-100% increases in insurance costs over recent years are significantly raising operating expenses for property owners, which in turn should affect how properties are assessed for taxation.

In property tax litigation, expenses are deducted from the income approach to valuation. Often, there is disagreement over appropriate expenses, and experienced valuation professionals and tax certiorari attorneys argue strenuously on this key point.

What Property Tax Assessors Should Be Considering

Given these market conditions, property tax assessors must start incorporating the following factors into valuations:

• Substandard insurance coverage increases financial risk and should be reflected in lower assessed property values.
• The widening gap between insurance coverage and actual rebuilding costs should be treated as a valuation factor, just like depreciation or rental income fluctuations.
• Higher insurance premiums represent a growing financial burden on owners and should be considered a charge against income when assessing value.

Unfortunately, many tax assessors fail to account for these issues because it is in their best interest to do so—and only litigation can prove this to them otherwise. This leaves commercial property owners with tax assessments that don’t reflect reality.

How RTC Can Help Ensure Your Property is Fairly Assessed

At Realty Tax Challenge (RTC), we specialize in helping commercial property owners navigate complex valuation issues like these. Our team:

• Analyzes your property’s insurance coverage and cost trends to determine if your tax assessment is inflated.
• Uses real-time market data to challenge inaccurate assessments and advocate for fair property tax reductions.
• Monitors shifting insurance and real estate market conditions to ensure your tax liability aligns with your property’s actual value.

If you’re concerned that rising insurance costs and inadequate coverage are inflating your tax assessment, it’s time to take action.

Does Your Tax Bill Reflect Reality?

Contact RTC today for a comprehensive review of your property’s valuation and expert guidance on lowering your tax liability.