CONSTRUCTION AND REAL ESTATE
Aon ’ s Real Estate Practice Leader Kevin Madden Identifies New Risks
Climate change and cybersecurity are key concerns in 2022 .
By Diane C . Walsh Contributing Editor
Concerns over climate change and cybersecurity are stoking new risks in the commercial real estate market , according to an industry leader at Aon , a multinational professional service firm that sells a range of financial mitigation products .
Kevin J . Madden , CPCU , ARM , who has more than 20 years of experience running the real estate practice at Aon , identifies climate change and cybersecurity as “ hot risks ” affecting the market . Madden is in a unique position to assess the industry since Aon represents one third of the nation ’ s large real estate owners , managers and developers .
While cybersecurity is a short-term risk that may be abated , Madden cautions that climate change will have an impact for years to come .
The advances in technology that enabled so many workers to conduct their business across the Internet on laptops from their homes has also exposed more companies to cyber threats . “ If a bad guy wants to get into a computer , it ’ s easier now ,” explains Madden , who notes that cyber insurance rates are increasing more than any other line of insurance .
Premiums will continue to rise unless companies take steps to mitigate their situations , Madden says . Such measures would include creating redundancy in their system , implementing third-party authenticity checks and even tabletop exercises conducted to assess vulnerability .
24 COMMERCE www . commercemagnj . com
Like many industries , the risks facing commercial estate have evolved over time . When Madden began his career as Aon ’ s Real Estate Leader , terrorism was a critical factor in the wake of the 9 / 11 attacks on the World Trade Center and the Pentagon in 2001 . Over time , it was supplanted by the Great Recession of 2007 and then natural disasters , like Superstorm Sandy in 2012 . Now analysts are gaging the impact of the COVID‐19 pandemic .
“ Risks are highlighted more than ever and the risks that are most concerning are the ones we ’ re not thinking about ,” Madden says . Aon recently published a white paper on the different categories of risk . In the terminology outlined in the report , a “ white swan ” is an everyday risk ; a “ black swan ” is something no one expected but a “ gray swan ,” is a low frequency occurrence which nonetheless has the potential to happen .
Risks associated with climate change often fall into the gray swan category . Madden says climate change is looming so large that many institutional investors want to study the data before committing to a project . They want to understand what effects a one- or two-degree change in temperature could have . Will it mean a rise in sea tides , drought , flooding , storm surge or even wildfires ?
Their concerns are making a building ’ s resilience paramount . In order to meet their net zero carbon commitments , Madden says he has seen instances where tenants would not even consider renting space unless a building was upgraded to an energy efficient and resilient structure . Retrofitting a building to achieve the new
Aon believes that climate change disasters , such as Superstorm Sandy , will have an impact for years to come .
Photo : Getty Images / iStockphoto / skrum
Kevin J . Madden , CPCU , ARM , Managing Director , Real Estate Practice Leader , Aon
standards can be expensive . He also says some tenants want properties to have a goal of a net zero carbon footprint .
All these factors are impacting property insurance . Due to increases in values and catastrophic losses , Madden says some industry experts are expecting a 300 percent increase in property premiums over the next 10 years to 15 years .
He said most insurers are trying to work with their clients to create solutions because it is a robust market , and the industry has more than adequate capital .
But he said there are factors at play that may force change . For instance , Madden says the government-run National Flood Insurance Program is implementing changes that will result in 8 percent or more annual increases . That sort of upward pressure could result in private companies devising new solutions .
Madden says the best advice he can give real estate owners is to view their insurers as another capital source . He encourages them to have a “ first-name relationship ” with their insurers “ because nobody can tell you about the risk better than the experts themselves .” If there is a close relationship , solutions can be fashioned to mitigate issues .