Commercial real estate continues to navigate a challenging and evolving post-pandemic environment characterized by higher interest rates, inflation and a lower demand for office space. As a result, chief financial officers (CFOs) are challenged to help their companies balance reduced market demand with increasing operating and financing costs.

Identifying additional operational cost savings and opportunities to further mitigate risk are key focuses as CFOs seek to address short- and long-term challenges. With cost savings and risk mitigation often highly intertwined, the current environment is prompting businesses to re-examine options in two significant areas.

1. Managing property and casualty insurance costs and risk

In recent years, inflation, higher construction costs and increasing catastrophic weather claims have driven historic increases in property and casualty insurance premium rates. Average commercial premium increases peaked at a record high of 20.4% in early 2023 before moderating slightly to 11.8% at year-end. Accounting for different market factors, experts forecast premium increases ranging from 5% to 25% in 2024.

As rates increase, it’s crucial for chief financial officers to review insurance policies to ensure properties are adequately covered, paying close attention to coverage limitations and exclusions as well as rising deductibles. Being over- or underinsured can have substantial financial consequences. Scrutinizing insurance expenses helps to identify coverage gaps that can lead to high out-of-pocket costs in the event of a claim. In addition, a detailed insurance checkup better equips CFOs to project realistic premium increases across different property categories.

Actions to Consider:

• Property and casualty insurance advisors can conduct a thorough assessment of your firm’s needs and in-force policies. The in-depth review will help identify vulnerabilities and opportunities to lower premiums. Your insurance advisors can assist with a detailed analysis that identifies potential cost savings by evaluating risk exposure, optimizing underwriting and pricing, and enhancing overall risk management.

• Explore opportunities to finance your property and casualty insurance premium to help improve cash flow. Premium financing enables you to spread insurance costs out over time, avoiding large upfront payments. In addition, the interest paid on the premium financing may be tax-deductible, and a tax advisor can evaluate your options and optimize potential tax savings.
• Conduct annual cybersecurity and data privacy assessments as well as regular system penetration tests. Cyber risks and security standards are constantly evolving, making it critical to engage experts who can help you analyze gaps, prioritize investments and tailor your plan across four critical areas: threat identification, protection, response and recovery.
• Evaluate your firm’s cybersecurity processes, adapting them as needed to ensure compliance with the SEC’s disclosure and governance requirements. Even if your business is not mandated to comply with the SEC, the requirements offer best practices for risk management and prevention.

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2. Mitigating cybersecurity risk

Gaps in cybersecurity pose increasing risk for commercial real estate firms from financial, productivity and reputational perspectives. In 2023, the average cost of a cyberattack for U.S. organizations was $9.5 million — more than double the global average cost of $4.5 million. Beyond the direct costs, without appropriate cybersecurity processes and protocols, your firm may be liable for damages related to a cyberattack.

With their risk management responsibilities, CFOs play a significant role in cybersecurity. From a financial angle, CFOs should be involved in assessing the firm’s cyber risk and prioritizing investment in strategies to mitigate the risk. They may also have regulatory compliance responsibilities related to cybersecurity. In July 2023, the Securities and Exchange Commission (SEC) began requiring public companies, including Real Estate Investment Trusts (REITs), to disclose cybersecurity risks, governance and defined cyber incidents.

Actions to Consider:

The dedicated commercial real estate team at CBIZ can help you mitigate insurance and cybersecurity risks and identify opportunities to save costs. Connect with a member of our team and gain access to more resources here.

This article includes input from Neil Sonenberg, Managing Director and co-leader of the Real Estate practice at CBIZ Marks Paneth, Vivian Jin, Managing Director at CBIZ Marks Paneth, and Marc Moore, Managing Director for CBIZ Advisory. Through their collaboration, CBIZ can assist your team in addressing today’s cybersecurity challenges and identifying cost savings opportunities.

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