Why don’t real estate investors eliminate insurable risk by diversifying their assets rather than paying an insurance company to handle the risk?
They don't have enough assets to self insure, for the most part - when you weigh risk vs. premiums, the premiums are cheaper. Also, most investors don't invest with cash - they leverage, and the mortgagees require real insurance.
Simply put, the opportunity cost of investments is much higher than the premiums paid on insurance policies to cover the non-diversified risk of real estate investing. In addition, real estate can yield much higher returns in a shorter period of time when compared to traditional investments such as securities.
You can't diverisify away the risk the building will burn down, or that you will be sued due to someone being injured on your premises.
