Commercial Risk Service: Commercial Insurance Rate Increases and What Causes Them

Many business owners ask me what causes their insurance rates to increase. There are often multiple causes for rate increases. A business’ loss history can affect insurance rates. If a business has multiple property or liability claims in a three or four year period, company underwriters will start taking a sharper look at that business to determine the risk of similar future claims. If the underwriters view the risk as higher than other similar businesses, they will factor that into their proposal. If claims are frequent or severe enough, some of the more conservative companies will simply decline to quote which will reduce the number of companies in the marketplace. When this happens, there is upward pressure on insurance rates.

Another factor in increasing insurance rates is the overall economy and the stock market. When the stock market is doing well, many insurance companies invest heavily, which is a major source of their profitability. During these times, insurance companies are looking to increase their market share and are willing to insure higher risk companies. Generally, the more competition among insurance companies in the marketplace, the lower the insurance rates for individual businesses.

Finally, regional factors can affect insurance rates for individual businesses. If a particular region of the country suffers an above average claim increase, insurance companies serving that region may decide rate increases are warranted. An example would be recent property rate increases in the marina industry in Arkansas, Missouri, Oklahoma, and Texas. This region suffered very high property losses in 2008 and 2009. In addition to the property losses, the stock market was also struggling during this time. Insurance companies started increasing rates in order to protect their profitability and the ability to serve the marine industry in the future.

How can a business improve their attractiveness to the insurance industry? A good risk reduction program is essential! Any steps that can be taken to reduce the likelihood of future property or liability claims should be taken. Be sure and share this information with your insurance agent. Your agent should be able to help you design a risk reduction program. A good program will help to lower your long-term insurance costs and help insurance company underwriters to provide the best premium rates available.