As a business owner you may have seen your business insurance rate go up this year, or may have been shocked to see your premiums escalate beyond what you think are reasonable. I’m recording this at the end of 2023 and I can say it’s been a rough year for business owners when we talk about insurance premiums. Why? What’s caused these problems? And what can you do about it as we enter 2024?
I’ll answer these questions and more in just a moment.
First, it’s important to understand that I do business across the U.S. and I can tell you that the issues in New York are going to be different than those in Florida, or California, or Texas, or anywhere else. But I can also tell you that there are some global issues and trends that influence rates all over.
If you’ve gotten your renewal bill and it’s up over last year my first piece of advice is to not panic. Often what I see happen is a business owner gets a renewal notice and it’s up over 10% and they hit the roof.
But in some cases, they forget that their business has grown over 10% this year so maybe the cost of insurance isn’t up on a rate basis but more on an exposure basis.
What I mean by that is that payroll, revenues, number of vehicles, etc. are the rating exposures for workers compensation, general liability and business auto insurance so if these exposures are up, it only makes sense that your premiums are up.
So, it’s important to separate rate from exposure and if your premium is up solely due to an exposure increase, than that’s pretty normal and to be expected.
But if the cost of your business insurance is up solely on a rate basis, which has happened a lot over the past year and I think will continue well into 2024, then there is reason for concern.
The question is how much business insurance rate increase is reasonable? Five percent? Ten percent Twenty percent?
That’s a difficult question to answer, so let me tell you about some of the factors contributing to premium increases and then explain some strategies to help you get the best results on your renewal.
You may have heard the term “hard market” when it comes to insurance and not fully understood it. So, let me take a minute and explain that.
A hard market refers to a period of time when insurance premiums are increasing and insurers are more selective of the accounts they will write and renew.
It often happens when claims are increasing dramatically and insurers aren’t making their profit objectives, or when the reinsurance market – this is where insurance companies go to buy insurance to spread their risk – is also hardening.
The result is that insurance is harder to get, hence the name hard market, which is in contrast to a soft market when rates are low and underwriting is much looser.
What we’re facing now is sort of a combination of issues that are driving rates up and availability down.
The global reinsurance marketplace is disrupted due to massive natural disasters around the world so they are charging your insurance company more to spread their risks around. Your insurer then needs to pass on these higher costs to their customers – meaning you.
Your insurance company is also facing increasing claims nationwide in business automobile, property insurance, and very high liability lawsuits which are breaching into umbrella policy limits.
In any coastal areas, the impact of changing weather patterns and global warming is making availability of property insurance at any price extremely difficult.
So, what’s the solution?
I think the first step is to evaluate your broker relationship. We speak to a lot of business owners every week and a lot of what we’re hearing is dissatisfaction when a business owner has worked with a direct writer or an online insurance provider. There’s no personal connection or there’s no real options offered, and this is a problem with the direct to consumer model.
I could go on for hours about this, but let me just say that there is value in working with an insurance broker and more value in working with a skilled insurance broker who can offer guidance, support and choices. When you buy direct from an insurance company or through and online provider you’re really at their mercy and it’s not a good position to be in.
Second, if you had a rough renewal last year, don’t wait until a month before this year’s renewal to be proactive. My advice is start a dialogue with your broker at least 3 to 4 months in advance of your renewal to get a sense of what renewal strategy they will deploy on your renewal.
In fact, if your broker is not contacting you 3 months before your renewal, you may be working with the wrong broker.
Third, and this is something you should be working on all the time, and that is what are you doing to control risk in your company? That question is focused more on accounts that are paying say $25,000 or more per year for business insurance, and it gets to the root of how your insurance is priced.
If you can demonstrate to insurance underwriters a proactive process around risk control and risk reduction you are going to fare much better than your peer group who does not have a risk control plan.
Underwriters want accounts that are likely to have fewer claims and they’ll discount premiums to get them. If you can demonstrate how you’re better than your peer group around risk control you’ll get premiums lower than your peers.
If you need help developing a risk control plan, I can show you our process and how we use this as leverage in the renewal negotiation process.
Broker relationship, working well in advance of your renewal, and a risk control plan – these are all things that do not operate in a vacuum. To achieve best results in the market you need to be checking these boxes.
Here’s the bottom line on business insurance rate increase.
Your business insurance is a critical for your sustainability. Getting it right, and having leverage in premium negotiations is paramount, so working with an expert really matters.
If you’re not getting the service, guidance or advice that you think you need and deserve then maybe a change is in order. If you’re mind is at that point, then give me a call and let’s chat.
I promise no high pressure nonsense, just a conversation to see if we’d be a good fit for you and your business.
As I mentioned earlier, we do business across the United States and I’d welcome your call. Drop me an email or just call and let’s chat.
Thanks!
