As hospital property insurance risks rise, hospital executives must take proactive steps to increase their facility's resilience to control costs, decrease liability, and protect their patients, providers, and staff. In tandem with rising risk, expenses related to property insurance are also increasing, putting hospitals in a tight spot as operating margins compress and a host of other costs climb.
Climate change represents one of the most visible and expensive property insurance risks as natural disasters and extreme weather events increase in intensity and frequency. In fact, during 2025, 23 individual climate and weather related events caused more than $1 billion in damages in aggregate, representing the third highest total since 1980.
The $1.4 billion in losses sustained by NYU Langone Hospital as a result of Superstorm Sandy in 2012 is a prime example that illustrates these risks. After 11 million gallons of water poured into an exposed ventilation shaft during the storm, multiple generators failed, which forced the evacuation of 200 patients, 45 from the critical care unit. NYU Langone recovered financially in large part due a $1.13 billion US Federal Emergency Management Agency (FEMA) disaster assistance grant, one of the largest ever awarded.
While the odds of another Sandy striking a hospital are low, the probability that rising risks from climate change will increase costs is pretty likely. In addition, for hospitals impacted by an extreme weather event, the odds of receiving a large grant from FEMA are equally unlikely due to the impact of Trump administration policies, which have reduced and delayed disaster assistance and funding. In any case, sound risk management practices require the development and testing of robust scenario and recovery planning.
To protect hospitals against extreme weather—and more mundane risks such as parking lot slips and falls—consider three steps to build a more resilient response to property risks: risk assess assets such as equipment and buildings to improve the facility and protect patients, staff, and providers from risk; optimize property insurance coverage; and strengthen disaster preparedness and continuity planning.
Strategy #1: Risk Assess Equipment and Buildings
In many hospital facilities, facilities managers and staff react to equipment and building problems rather than intentionally building and executing a plan to extend the useful life of that equipment and buildings. Hospital executives may aggravate the problem by viewing facilities as a cost center instead of realizing that well-timed and appropriate investment in facilities not only saves money, but also reduces risk.
Aging hospital infrastructure, buildings, and facilities employees are an under-the-radar risk. Consider that outdated hospital systems waste up to 30% of the energy they consume and pay for, while patient satisfaction rates decline by 25% in facilities with visibly outdated environments. Deferral of needed repairs for buildings and equipment results in a higher risk of failure, which can endanger patients, providers, and staff and result in unexpected and expensive emergency repairs.
The best way to future-proof facilities and equipment is to engage in a proactive asset management strategy. First, “know what you own.” Many hospitals and hospital systems lack a detailed and accurate inventory of their buildings and equipment. Creating an inventory involves getting facility managers and staff to place a QR code on each piece of equipment and enter that QR code into a computerized maintenance management system (CMMS) with the equipment's location, system, serial number, model, make, maintenance schedule, and a history of past repairs.
Create a risk-rated asset hierarchy that classifies equipment by the level of risk as categorized by NFPA (National Fire Protection Association) 99:
Category 1: Facility systems where failure is likely to cause major injury or death to patients, providers, or staff.
Category 2: Facility systems where failure is likely to cause minor injury to patients, providers, or staff.
Category 3: Facility systems where failure is not likely to cause injury to patients, providers, or staff but that may cause patient discomfort.
Category 4: Facility systems where failure won't impact patient care.
Risk-ranking equipment and buildings ensures resources are directed to areas that are the most critical. For example, not all air handling units are created equally. Air handling units in operating rooms (ORs) and critical care units are risk ranked at Category 1, while air handling units in administrative buildings and medical office buildings are risk ranked at Category 4.
Imagine the potential patient care, financial, and reputational damage that can occur if an air handling unit in an OR goes down. Not only would the OR have to close, shutting down a critical source of revenue, but vital surgeries might have to be postponed or transferred to other hospitals.
With a risk-ranked equipment and building inventory in hand, facilities managers can design a capital improvement plan to address the most critical areas needing improvement over time, saving time, money, and other resources. By demonstrating to property insurers that facilities are proactively risk-assessed and maintained according to that risk assessment, the facility may receive more favorable insurance terms and coverage.
Strategy #2: Optimize Property Insurance Coverage
The risk-based asset management program discussed in the previous sections supports the ability to optimize property insurance coverage. That's because risk-based asset management programs prioritize facility sustainability, helping hospitals prepare for extreme weather events and meet or exceed risk mitigation best practices. Also, because hospitals are highly regulated, they typically must meet or exceed engineering standards to stay in compliance with authorities having jurisdiction, which include local, state, regional, and federal regulatory and compliance bodies.
Within the broad category of property insurance, hospitals may need some or all of the specific types of property insurance:
- Commercial property insurance: Pays to replace or repair buildings, equipment, and property damaged by a fire, storm, or other events covered by the policy.
- All-risk property insurance: Protects against direct loss or damage except for loss specifically excluded.
- Equipment breakdown coverage: Pays to replace or repair equipment included in the policy such as HVAC equipment, computers, surgical equipment, MRI/CT scanners, X ray machines, and more.
- Business interruption coverage
- Specialized/industry-specific coverage: Includes hospital nuclear facilities coverage, communicable disease contamination, emergency patient evacuation expenses, and mobile medical equipment.
- Builder's risk coverage: Protects construction and renovation projects by covering physical damage or loss to materials, fixtures, and equipment during construction.
- General liability coverage: Provides coverage against third-party claims for non-medical incidents that involve bodily injury, property damage, and personal injury.
Many hospitals use a mix of captives, primary insurers, secondary insurers, and global reinsurers to create a layered structure to distribute risk and utilize high limits for catastrophic losses. These layers are then contained in towers that include a hospital's total property insurance limit. Most hospitals work with brokers who construct a tower with multiple layers.
For example, a regional hospital system with $2 million to $4 million in total property values might construct a property insurance tower with six layers. The first layer would consist of self-insurance then the second through fifth layer would be spread between a primary insurer, excess insurers, and reinsurers. The final catastrophe layer would be covered by global-reinsurance backed insurers.
Through this kind of tower structure, high frequency losses such as equipment damage, water leaks, and electric failures are retained internally. Then, the primary insurers would cover moderate losses immediately above the hospital's retention limit. This layer tends to be heavily scrutinized in underwriting because it pays the most frequent claims. The subsequent layers spread catastrophic risk among multiple insurers.
The size of the tower depends on a number of factors, including where the hospital facilities are located, the total insured value of hospital properties, and the complexity of the system. Hospitals with facilities located in areas where fires, hurricanes, or earthquakes are likely to happen tend to purchase larger towers to protect themselves against the possibility of extreme weather events. Hospitals with more complex operations such as trauma centers, centralized energy plans and/or research facilities also tend to want larger towers.
To strategically optimize property insurance coverage, it is recommended to create a tower based on the system's estimated maximum loss versus the total asset value to align coverage with risk exposure. Higher deductibles are also a possibility to avoid expensive primary insurance layers. Working with a reputable broker can help optimize layering within the tower to avoid layers that are too small or unevenly sized because these increase administrative complexity and premium loading.
Ultimately, the goal should be to structure a property insurance tower to retain predictable losses internally, transfer moderate losses to insurers and transfer catastrophic losses to the global reinsurance markets.
Strategy #3: Strengthen Disaster Preparedness and Continuity Planning
To ensure hospitals are ready for a disaster, facilities managers should employ the four phases of emergency management outlined by FEMA: prevention, preparedness, response, and recovery. When hospitals create and execute plans around these four phases, they can maintain operations, avoid service interruptions, and protect patients, providers, and staff during a crisis.
The key is to risk assess assets and maintain them appropriately. Most likely, authorities in a local jurisdiction require facilities to prepare in specific ways to deal with potential disasters. For example, California requires that all acute care hospitals meet strict seismic safety standards by 2030 so that they can continue to operate in the wake of a major earthquake.
To prepare for a disaster, create detailed emergency plans. Staff should be trained on those plans using drills so that everyone is familiar with their role. Stock up on emergency supplies, communicate with external agencies, and implement redundant systems, many of which are required by Authorities Having Jurisdiction. For example, hospitals are required to install and test back-up generators that must activate within 60 seconds of a power loss.
During a disaster, hospitals must immediately put emergency procedures into action, coordinating with local emergency services and activating response teams. It is important to keep everyone informed through established communication protocols, maintain facility security, and implement appropriate triage to ensure that patients receive appropriate care.
Once the disaster is over, assess any damage, restore critical IT systems, and provide support for staff to help them cope with the disaster. Ensure that those in charge are maintaining clear lines of communication with authorities having jurisdiction on the local, state, and federal level as well as with other area hospitals. It's a good idea to document all decisions, actions, and events that occurred during the recovery so that staff can conduct a comprehensive review of disaster response and recovery.
Business continuity is a critical part of disaster preparation. Prepare a business continuity plan that describes a return to normal operations as quickly as possible after a disaster. Robust business continuity insurance will cover operating expenses and lost revenue that result from a disaster, whether that disaster is a hurricane or a flood.
Engage in Proactive Risk Management
Taking steps to appropriately manage hospital property insurance risks will ensure that your hospital mitigates risk, keeps insurance costs as manageable as possible, and maintains facilities in line with risk rankings.