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Top Factors Impacting Business Insurance Costs

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by Richard Vaughn , Head of Sales, Main Street America Insurance •

As a business owner, you know insurance is a necessary expense. Understanding the costs associated with business insurance and the factors that influence your policy, is a key part of a sustainable business plan. Certain factors are related directly to the type of business you run, while others correlate to the economy and the ever-changing world around us.

What Drives Business Insurance Costs?

  • Type of Business: The type of business you operate is a primary factor that affects insurance. For example, a construction company may have higher insurance costs than a consulting firm due to the higher risk of property damage and injuries on construction sites.
  • Business Size: The size and scale of a business also influence insurance costs. Generally, the larger the business, the higher premiums will be.
  • Location: Where a business is located can also impact insurance costs. For example, a business located in an area prone to natural events like hurricanes or earthquakes will likely have higher insurance costs than one located in a low-risk area.
  • Industry Regulations: Certain industries have specific regulations that require businesses to carry certain types of insurance coverage. For example, healthcare businesses are required to have malpractice insurance in many states, and trucking companies must have commercial auto insurance.

Why Is Business Insurance Going Up?

Insurance rates change over time, even without any changes to your policy itself. Factors like inflation, changing weather patterns and labor costs all play a part. Let’s dive deeper into what may cause rate increases:

  • Weather-Related Events: According to the NOAA, in 2023 the United States experienced 28 weather and climate events costing at least 1 billion dollars. That marks the fourth year in a row with 18 or more separate billion-dollar disaster events, indicating this could be the new normal.
  • Technology: Businesses are increasingly vulnerable to cyber threats and data breaches. Anne Neuberger, Deputy National Security Advisor, recently shared information predicting the annual average cost of cybercrime will exceed $23 trillion by 2027. Additionally, a study by Astra Security revealed that nearly 43% of cyber-attacks are on small businesses, yet just 17% of small businesses have cyber insurance. These factors can impact premiums for business owners.
  • Cost of Materials: The rising cost of construction materials has a direct impact on premiums. It’s reported that the cost of materials like wood, plastics, composites, plaster, and thermal protection will hit average increases of 6.5% through 2025.
  • Construction Labor: Contractors are facing labor shortages, supply chain issues, and overall higher costs, leading to an increase in the cost of labor. Rebuilding after a claim may not just cost more, but also take longer while they wait on materials and available workers, which can increase the cost to pay a claim. 
  • Economic Conditions: Fluctuations in the economy also influence insurance premiums. While inflation slowed in 2023, a recent report indicated that consumer goods prices rose 3.4% annually to close out the year.

Ways to Manage Business Insurance Costs

Like so many other things in business, it’s important to be proactive. Let's explore some ways to manage commercial insurance costs.

  • Bundle Your Policies: Many insurance companies offer discounts for bundling multiple policies, such as business owners’ policy, liability, and workers' compensation insurance. Bundling policies can also make it easier and more efficient to manage your insurance coverage and premiums.
  • Implement Risk Management Plans: Avoiding an insurance claim is one of the best ways to keep insurance costs down. By doing things like conducting regular safety training for employees, properly maintaining property and equipment, and having a disaster recovery plan in place, you can help prevent a loss.
  • Pay in Full: Many insurance providers offer paid in full discounts to policy holders who make a single payment rather than breaking their premiums down into monthly installments. In some cases, you may receive a discount for setting up auto pay rather than manually making payments each month.
  • Review Your Coverage Regularly: Business insurance needs may change over time, so it's essential to review coverage regularly. As your business evolves, you may need to increase your coverage limits or add new types of coverage to adequately protect your business. Alternatively, if your business downsizes or changes its operations, you may be able to reduce your coverage and lower your premiums.

Be sure to review your coverage with a local insurance agent at least once a year to ensure you have the right coverage.