How Global Trends are Impacting Business Insurance and Claims

Inflation has been a persistent issue in the United States, though it has moderated since its peak during the COVID-19 pandemic, while supply chain disruptions for equipment and other goods continue to add to insurance claim costs—and the financial impacts of tariffs and trade policies remain uncertain.

How will these global economic trends affect businesses and their insurance carriers? What advice can you give your clients to help them meet these challenges?

These are questions a few much-needed facts may begin to answer.

Rising Prices Pushing Claims Higher

Inflation has eased, but it is far from gone. The Federal Reserve has highlighted how disruptions in global trade are exacerbating inflationary pressures, particularly when they affect intermediate goods—components used in the production of other goods.

Higher costs are not limited to consumer goods but also extend to the industrial and commercial sectors. Since many equipment repairs rely on replacement parts, the inflationary impact is direct and substantial.

Insurers and their business customers are feeling the strain. HSB’s average cost of a commercial equipment breakdown claim increased by 29% over a two-year period from 2023 through 2024.

Price hikes for equipment and spare parts will continue to be a significant concern for insurers and their clients as businesses become ever more dependent on technology.

Supply Chain Delays Add to Losses

Supply chain disruptions, although improving since their peak during the COVID-19 restrictions, continue to add to insurance claim costs for breakdowns and business interruption.

The scarcity of parts and the need for expedited shipping impact equipment maintenance, repairs, and replacement, causing delays, downtime, and bigger losses.

HSB has been studying the impact of supply chains on equipment since 2023. At that time, we evaluated the delivery times of several types of equipment in comparison to their pre-pandemic levels. While some lead times have improved since, others have grown even longer, for a different reason.

The demand for electricity by Artificial Intelligence processing data centers and the electrification of everything has also increased demand for electrical infrastructure equipment.

As the use of AI in business, industry, and everyday life expands, the need for more power and electrical distribution equipment including switchgear and transformers will continue.

Tariffs, Imports and Electricity

Trade policy changes, including tariffs, pose an additional challenge. Not only can tariffs lead to higher repair and replacement expenses, particularly for businesses that rely on imported machinery or parts, but the uncertainty surrounding future trade policies discourages long-term investment in diversified supply chains.

Imposing tariffs could also have a significant impact on the supply of electrical equipment, which is already stressed by scarcity and high demand.

In a June 2024 report, the National Infrastructure Advisory Council estimated that only 20% of large power transformers were produced in the U.S. The U.S. Department of Energy has proposed new transformer efficiency standards that would require some types of transformers be made with amorphous steel, which cannot be sourced domestically.

Whether they own a transformer or not, all businesses rely on electricity. Longer lead times for repairing or replacing electrical equipment could result in increased downtime and business interruption.

Plan to Prevent Breakdowns

Two key strategies can make a big difference to help avoid equipment-related shutdowns and insurance claims.

1. Have contingency plans in place. Be ready to respond to an unexpected incident or disruption with spare parts and backup equipment, lead time planning, inventory strategies, and agreements with suppliers and equipment manufacturers. Be aware and prepared for economic shocks to stay in operation, minimize financial losses, and protect customer relationships.

2. Focus on equipment maintenance. Avoiding breakdowns can help ease the impact of economic trends on the bottom line. Maintenance is a broad concept that applies to any critical equipment. Whether it involves preventive care, corrective repairs, cleaning, or software updates, maintaining high-functioning equipment is essential for smooth and stable operations.

A business owner may not think about the effects of inflation, supply disruptions, and economic policies on the equipment they rely upon. Yet, equipment is essential to compete in today’s global economy. Those who manage organizations must focus on the factors they can control, including contingency planning, equipment maintenance, and comprehensive insurance protection that provides services to help maintain operations and prevent loss.

Nosari is the senior vice president of commercial equipment breakdown claims at HSB. He has held roles in Claims and Engineering at HSB for more than 30 years.