Rising insurance costs may become a concern for businesses as they gradually adapt to an inflationary post-pandemic season. Your business insurance premium renewal may have arrived, and the numbers may have surprised you. Or perhaps you haven’t received yours yet but have seen a consistent rise in the premiums over time.
According to the Global Insurance Market Index, commercial insurance prices have increased by 11% in 2022 Q1 alone. It was established from the report that small and big businesses have continued to experience annual increase rates since 2019.
Here at Expense To Profit, we unpack how businesses can improve their bottom line by drastically cutting overhead costs. Our resource section is filled with tips your business can strategically implement to reduce expenses.
When faced with increased insurance premiums, employers might have to either deal with the rising costs or pass it on to their workers – which no one wants
What are the reasons why you might be dealing with increased business insurance premiums? More importantly, how can you deal with these premiums? We explore them below:
Why Are Business Insurance Premiums on the Rise?
There are several reasons why company insurance costs may be rising. Some of these reasons are legitimate, but others can be resolved by making a few wise choices.
The factors include:
We Are Right In A Hard Market
The insurance industry gradually shifts between a soft and challenging market. From projections, we are clearly in a challenging market. But if you do not know how it works, you may be unable to ascertain the current insurance cycle.
During a soft market, there is increasing competition amongst insurance providers to attract business. Thus, premiums decline or remain stagnant for a lengthy period.
The soft market is particularly beneficial to small business executives, as they can get more value for their finances. Policy requirements during the weak market are lessened, and policy limits are increased.
The soft market comes into play when ample funds, fewer claims, and a good economy.
The reverse happens during a challenging market cycle. Most insurance providers pull out of the market, with the remaining insurers issuing higher premium rates, toughening their conditions, and limiting coverages.
Another apparent reason your business insurance premiums may increase is that economic shifts affect insurers.
COVID, inflation, and sudden changes in interest rates all impact the insurance economy and affect insurers when they need to pay a claim.
Your insurance premiums might increase if there are a couple of claims within your business. One or two claims over a coverage period do not impact your premiums. However, when there are repeated claims occurring, your premiums are going to go up. This affects your BOP policies, workers comp, business auto, and other coverages.
In most cases, if your business has more claims than the expected rate of claims, a debit factor will be applied to your insurance policy. That policy can remain in your insurance for more than three years.
Non-Compliance with Loss Control
Another reason why your business insurance premiums are high is due to your non-compliance with recommendations. Most insurers conduct risk control analyses and identify areas that need to be improved to lower your premiums.
Recommendations such as having an HSE policy, ESG compliance, improved housekeeping, or extinguishers may increase your premiums if you do not have them in place. It signals insurers that you do not care about lowering your business risks.
How to Manage Rising Insurance Premiums
You can take several strategic steps to control your business insurance premiums if you are dealing with increased rates every time.
Work With A Certified Expense Reduction Expert
Business insurance may appear complex to executives. Thus, you need the professional guidance of a cost reduction firm to navigate the numerous insurance options available.
Expense To Profit can provide your business with favorable insurance options that will better your cash flow and bottom line in the long run.
Prepare for Insurance Renewal Early
You can also control your premiums by preparing for the renewal early enough. You should be fully equipped ten weeks before the insurance renewal date.
The best chance at getting a favorable premium for your business is the availability and quality of information you present to insurers. This information includes:
- Your revenue.
- The total number of employees and subcontractors.
- Updated asset valuation.
- Safety measures in place (smoke detectors, hose reels, fire extinguishers, sprinklers, etc.)
You also need to ensure all risk recommendations are implemented before renewal.
Classify Your Workers Accordingly
Because of the hazards of the job, your employees are assigned to specific class codes. Some of your employees who face higher risks will automatically receive a higher rate on their workers’ compensation insurance. However, if you incorrectly categorize your employees, you will have to pay higher insurance costs.
Thus, it is essential to classify your workers accordingly. We published an extensive article on Completing a Workman’s Compensation Insurance Audit. You should check it out.
Understand Your Current Risks
Another way to mitigate rising insurance premiums is to understand your current risks. Take a critical look at some of the significant infrastructure in your business. Are you willing to take on the financial responsibility if these risks are uninsured?
Ensure that you conduct a risk and exposure analysis on your core assets and provide a benchmark on which risks to keep insured and the ones to leave uninsured.
Implementing these strategies in place will save your business from increased insurance premiums.
Business insurance premiums are constantly rising, but the COVID pandemic and the current inflationary environment worsen it. If your insurance premiums seem to be rising at an alarming rate and you require the assistance of an expert, please do not hesitate to contact us.
Expense to Profit is a cost-reduction agency designed to help small and large businesses improve their profit margins by reducing overhead expenses. Our strategies are industry-proven and tailored to your business needs.
Call us today for a free consultation and expense reduction analysis.
Published by Marc Freedman
Marc currently serves as our Chief Cost Evaluator, expertly advising our client management team on how to help you successfully achieve your business and financial growth goals. A respected mentor to all he consults with, he is an avid collaborator and contributor to the spend consultant community, guiding thought leaders to formulate, design, and install the best operational solutions available to their clients.