When it comes to insurance, overall costs to businesses continue to rise. U.S. commercial insurance rates continued to increase at slightly more than 6% in the second quarter of 2023 according to WTW’s Commercial Lines Insurance Pricing Survey.
All lines saw rate increases except workers’ compensation, directors’ and officers’ liability, and cyber. Commercial property saw the biggest increase.
With increased insurance costs compounding inflationary and labor supply challenges, it can be tempting for some businesses to cut back or even cancel some coverage to save money on premiums, but this, professionals say, is what not to do.
CNB Insurance Agency
Jerry Lack, vice president, wealth insurance advisor for CNB Insurance Agency — a wholly owned subsidiary of Canandaigua National Bank & Trust — is straightforward when it comes to answering the question: “What can happen if a business is underinsured?”
“Bankruptcy,” Lack said. “Ultimately if you’re not properly insured you could go out of business. And for sole proprietors the biggest risk is not only their business being impacted, but their family.”
Lack says the driving forces behind today’s increases in commercial business costs and premiums from the national carriers are the impact of the COVID-19 pandemic, inflation, and environmental factors. He also says there are steps businesses can take to keep their costs as stable as possible.
First is to understand your company’s actual risks via risk assessment and do everything possible to mitigate risk. Once you understand your actual risk, you should make informed decisions on policies after a careful annual review from your agent.
“Sometimes businesses get stuck in a rut where they renew, but don’t review,” Lack said. “Work with your agent to make sure you don’t sit idly by. Have your agent be your partner and help you; don’t just call your agent when you have a problem.”
J.D. Chapman Insurance Agency
Kevin M. Mucci, account executive with J.D. Chapman Insurance Agency has worked in the insurance industry for thirteen years and calls today the hardest market he’s seen.
“When I look at a daily report and I see the number of pre-cancellations, it’s probably the highest I’ve ever seen,” Mucci said. “And it’s simply because people haven’t paid their bill yet, or they’re waiting until the last possible minute to make that payment. These are things that I’ve noticed before, but never to this level.”
It’s a widespread issue. A new study released by Prudential earlier this month found that over half of Americans surveyed on personal insurance costs are either “extremely” or “very concerned” about being able to handle future increases. And 20% of respondents said they were considering dropping their auto insurance.
To help with rate increases, Mucci says for personal lines like homeowners people can consider adjusting their deductibles, bundling policies, and avoiding claims. On the commercial side, he says it’s important to implement proper risk management to avoid claims and to have conversations with your agent to make sure your coverage is correct.
“Many package policies are so customizable,” Mucci said. “There can be additional things you’re paying for that may not even be pertinent to the company and that can change on an annual basis, depending on their changes to the market dynamics.”
Mucci explains most business policies are based on either sales or annual receipts; payrolls; or a combination of the two.
“If you have a downturn in sales, you’re going to be paying a lot higher premium for something that you shouldn’t have to be,” Mucci said. “That will normally be picked up in an annual audit, but these are things that you can check on at renewal so you’re not overpaying for the year.”
It’s important for businesses to see their insurance agents as being on the same team, too. He believes there’s sometimes a misconception that agents are the ones driving rate increases, which is not the case.
“It’s not the agent that’s causing these increases, it’s the overall environment,” said Mucci, explaining that the environment includes everything from an increase in vehicle theft to more natural disasters. “We’re the ones that are going to try to help find a solution.”
Kelly Shea is head of office for SDN Insurance, an affiliate of Five Star Bank with locations in Rochester and Buffalo. He’s worked in the insurance industry since 1972 and has helped commercial and personal clients through many different hard and soft markets.
“This is a hard market — a very difficult one,” said Shea, who attributes it to a mix of factors including high inflation, social inflation, and more natural catastrophes. “In the last year, it’s not been uncommon to hear about 8-15% premium increases and these are clients who are doing everything right.”
If you have a bad loss rating you can expect to see higher premiums, Shea says, so part of his team’s role is educating clients on how they can control their exposures and losses. Investing in safety and protocols like sprinkler systems, a safety team, and thorough training on equipment can often save money eventually.
“People who spend some time paying attention to their employees and facilities are going to win,” Shea said. “If you’re doing everything the right way you probably see some rate increases, but not to the extent that others are seeing.”
Shea says it’s extremely important for business owners to engage with their insurance agents and to view them as a partner like their banker, accountant, or attorney. Long-term relationships are also important.
“If you have longevity with one carrier you’re often not going to see the spikes,” Shea said.
Caurie Putnam is a Rochester-area freelance writer.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.