Why Commercial Insurance Premiums Are Still Rising
Even as overall inflation has begun to cool, many customers are noticing that their insurance premiums for home, auto, and commercial policies continue to climb. It might seem puzzling at first – if the economy is stabilizing, why aren’t insurance rates coming down? The reality is that insurers are still grappling with higher costs and more frequent claims in the aftermath of the past few years. In fact, when premiums rise, it’s often to offset the ongoing impact of inflated costs, supply shortages, and increased claims across the industry. In a 3-part series of LBP Life posts, we will discuss the key reasons why insurance rates are still increasing in the current economic climate, focusing on homeowners, auto, and commercial insurance.
Look for Part 2 on Auto Insurance and Part 3 on Homeowners Insurance over the next few days.
Part 1: Why Commercial Insurance Premiums Are Still Rising
At LBP Insurance, we completely understand how frustrating it can be to see your commercial insurance premiums increase, especially when inflation is slowing down. Like you, we’ve been feeling the impact of these rising costs, and we want to help you understand why it’s happening. In this first part of our 3-part series, we’ll dive into the key reasons why commercial insurance rates are still climbing, from increased construction costs to the rising risks from natural disasters. We also want to emphasize that switching to another carrier for a small savings isn’t always the solution—policies can vary greatly, and what looks like a deal might actually leave you with fewer benefits and valuable coverage options. Let’s explore these factors so you can make informed decisions for your business.
Why Are Commercial Insurance Premiums Rising?
The commercial insurance landscape is undergoing significant changes, with rising premiums affecting businesses across industries. While broader inflation has eased, several factors are still contributing to the upward trend in commercial insurance rates.
1. Increased Construction Costs
One of the biggest drivers of rising commercial premiums is the cost of rebuilding. The cost of building materials like steel, lumber, and concrete remains significantly higher than pre-2020 prices. In fact, the commercial construction sector has seen costs increase by as much as 37% in the last few years due to inflation and supply chain disruptions . These higher costs mean that insurers must increase premiums to cover potential claims for property damage.
2. Rising Risk from Natural Disasters
The frequency and severity of natural disasters have increased over the past few years. Events like hurricanes, wildfires, and severe storms have caused billions of dollars in damages to commercial properties. According to the National Oceanic and Atmospheric Administration (NOAA), 2023 saw a record number of natural disasters affecting both residential and commercial properties. These higher risks have prompted insurers to raise premiums in areas prone to extreme weather events .
3. Legal and Liability Risks
Another significant factor contributing to higher premiums is the rising liability risks that businesses face. From slip-and-fall incidents to lawsuits related to product liability or professional negligence, businesses are exposed to greater legal risks. Furthermore, the legal environment has become increasingly complex, leading to higher litigation costs. This trend, often referred to as social inflation, has caused insurance providers to increase premiums to cover potential claims .
4. Labor Shortages and Increased Costs of Claims
The shortage of skilled workers in sectors like construction and repairs has added significant pressure on insurance providers. With fewer workers available to complete repairs, labor costs have surged. This means businesses face higher costs for repairs and rebuilding, and insurers must increase premiums to cover these potential expenses .
What Can You Do?
If your commercial insurance premiums are rising, it's crucial to take proactive steps. Regularly review your coverage limits, ensure you're not underinsured, and work with an independent agent like LBP Insurance to shop around for the most competitive rates. Contact us today!