Why Are My Business Insurance Rates Going Up?
Business insurance rates are going up because of several factors, including the pandemic, higher litigation costs, increased severe weather events, economic issues and cybersecurity risks. These have contributed to a so-called “hard market” where insurers raise rates and lower capacities.
Let’s explore in more detail each of the key factors for why business insurance rates are going up:
• Social Inflation and Litigation: Because of a general anti-corporate sentiment, as well as a sense that “someone must pay” damages regardless of negligence, insurers are experiencing increased litigation and larger jury awards and settlements, including an unprecedented increase in so-called “nuclear” awards of $10 million or more. These contribute to so-called “social inflation,” pushing up rates to cover these costs.
• Severe Weather: Extreme weather events like hurricanes, wildfires, droughts and tornadoes have become more frequent in recent years, growing in size, scope and cost. Increased frequency and severity make it more difficult for insurers to effectively predict potential losses, which result in higher rates.
• Economic: Insurers are experiencing deteriorated loss ratios, causing their investment income to fall. This results in higher rates for policies to make up for those losses and decreases in income.
• Cyber Risks: Data security is one of the top risks for many organizations, and it’s a risk that continues to grow. The number of ransomware and phishing attempts are only increasing, as are ransom payments and claims. Such factors result in carriers raising rates for cyber insurance.
How Can I Limit the Impact of Higher Insurance Rates?
While we remain in a hard market, you may not be able to avoid higher rates come renewal time. But you can limit the impact of higher insurance rates on your business by determining your absolute minimum coverage needs, forgetting about past performance, considering alternatives, keeping good records and addressing cyber risks. Let’s break down each of these strategies:
• Determine Absolute Minimum Coverage Needs: If you’re facing an extreme rate hike or capacity cut, establish your absolute acceptable minimum coverage needs and limits.
• Forget About Past Performance: In a hard market, you can’t necessarily count on past performance to gauge how renewals will go. Instead, create a strategic plan for renewals along with a compelling submission for your business. Remember, in the current climate, rate hikes are almost certain, as are possible coverage cuts, higher premiums and deductibles.
• Consider Alternatives: With rising rates, it may be beneficial to look at alternative risk-financing solutions. These can include things like new insurance structures, self-insurance options or captives.
• Keep Records: With increasing risk of litigation, be sure to keep pristine records related to your processes, procedures and documentation to help with any needed legal defense.
• Address Cyber Risk: With cyber-attacks on the rise, managing cyber risks is vital. Identify your risks through penetration testing, cybersecurity gap assessments and put in place a cyber incident response plan to help mitigate risk and keep any potential claims low.
If your business is nearing renewal and needs to explore options or strategies for navigating rising rates, the experts at Lovitt & Touché can help. Learn more about our full suite of business insurance offerings.