Trends Impacting Commercial Insurance Costs

April 12, 2023

As your insurance advisor, it is our job to keep you informed of what is happening in the industry, our economy and anything that could affect your insurance coverage. The current level of inflation and increase in construction costs is making everyone’s property values and business income inadequate should a claim arise. In addition, the length of time to restore damaged property and equipment is taking much longer, thus increasing commercial insurance costs.  

Recent market developments have demonstrated signs of an improving commercial insurance landscape. Yet, industry experts asserted that ongoing headwinds facing certain lines of coverage would continue to generate hardened conditions overall, therefore driving up premiums.  


As such, businesses need to know the following market trends and how they may impact commercial insurance costs: 


Labor Shortages

Some businesses hire less experienced workers and place extra demands on existing employees to fill labor gaps; however, doing so can heighten liability exposures and increase the risk of workplace accidents, paving the way for rate jumps in several commercial insurance segments.  


Supply Chain Disruptions

Continued pandemic-related challenges, global transportation breakdowns, and commercial driver shortages have slowed shipment and delivery times for many high-demand goods, creating supply chain issues for businesses across industry lines.  


Inflation Issues

The high consumer price index has increased claim costs, inflated total loss expenses, and prompted rate hikes for various lines of coverage.  


Recession Risk

Some economic experts have forecasted that the United States is headed toward a recession soon. During a recession, businesses usually experience decreased sales and profits, which may cause them to reduce their workforce and cut their spending to help maintain financial stability. Although having fewer employees could minimize occupational injuries and associated claims, limited funding for risk management and cybersecurity initiatives may create further liability exposures, making businesses more vulnerable to increased losses and higher commercial insurance premiums.  


Social Inflation Concerns

Social inflation refers to societal trends that push insurance costs above the overall inflation rate. Current drivers of social inflation include increased third-party litigation funding and the rise of anti-corporate culture. Amid these trends, businesses have been held more accountable for their wrongdoings, sometimes resulting in nuclear verdicts (jury awards exceeding $10 million). As a result, social inflation has been a primary factor in rising claim severity, and the rate jumps across many commercial insurance segments.  


Extreme Weather Events

Natural disasters (e.g., hurricanes, tornadoes, hailstorms, and wildfires) continue to make headlines as they become increasingly devastating and costly. However, these events are more expansive than one geographic area; they impact establishments across the United States. Natural disasters have left businesses with significant repair and replacement expenses, exacerbating losses and higher commercial insurance premiums.  


Considering these factors, please review your current insurance limits on your buildings, property and business income. Do you have enough coverage to rebuild at today’s cost? Do your limits need to be increased? We are here to answer any questions or help you re-evaluate your needs. Please give Shepherd Insurance a call if we can assist.  

During these challenging times, we are here to provide much-needed market expertise. Contact us today for additional risk management guidance and insurance solutions.