We live in uncertain times, and where there’s uncertainty, there’s risk. With the economy stalling and global unrest worsening, costs are going up in all sectors, and insurance is no exception. In fact, there is a veritable storm of factors converging on the commercial property insurance market, leading to higher commercial property insurance average costs and causing many to ask why is commercial property insurance so expensive.
In this blog post, we’ll define commercial property insurance, discuss current market conditions, and give advice on how to help soften the blow by getting the best possible rate.
What is Commercial Property Insurance?
Commercial property insurance is an insurance policy that covers a piece of real property that is used for the purposes of running a business. It typically provides coverage for the physical premises and assets contained therein from storms, theft, burst pipes, vandalism, and explosions. Additionally, If someone else’s property experiences a qualifying event on your premises, it will be covered under the insurance. If floods are a concern, then an add-on policy is almost always required, and if businesses fail to get adequate coverage, they could face millions of dollars in out-of-pocket costs should something occur.
What’s The Current Market Like?
Today’s market conditions are turbulent, to say the least. A potent mix of factors has come together, resulting in raised commercial insurance rates across the board, specifically a 10.7% increase in the average commercial property insurance rate this past quarter. Here, we’ll break down some of the biggest contributors to this rise as well as some more general considerations that go into determining a commercial property insurance rate.
Natural Disasters
When mother nature comes knocking, sometimes even our best efforts aren’t enough to stop catastrophic damage to commercial property. Hurricanes, floods, wildfires, and tornadoes can all bring even the most prepared businesses to the brink. What’s worse, these events are happening with increasing frequency and severity due to the effects of climate change. As the number of catastrophic loss claims due to natural disasters continues to trend upward, so too will premiums.
Economic Conditions
Overall economic conditions play a factor in determining pricing in almost every sector and industry. Throughout 2022, the economy experienced something of a downturn and rise in inflation, while costs have risen at every level of the supply chain, leading to higher overall prices for goods and services. For insurance in particular and beyond the costs associated with inflation comes the higher risks of so much economic uncertainty.
Construction Costs
While the costs associated with repairing or rebuilding a property can vary depending on construction materials, location, and other factors, they are currently trending upward across the nation. This is due in large part to the same increase in prices at every level of the supply chain mentioned earlier. The rise in natural disasters only exacerbates the problem by piling up expensive payouts.
Claims Trends
Due in large part to the increase in extreme weather, the number of commercial property insurance claims has been rising in recent years. With each of these claims resulting in a higher average payout, rates have risen in response.
Property Location
Property location plays a major role in determining the cost of your policy. If you own a business in an area with a high crime rate or that experiences a higher-than-average number of natural disasters, your premiums will likely be impacted.
Building Condition
If your building is determined to be in a state of disrepair or otherwise more likely to experience a claim-triggering event due to its condition, your commercial property insurance rate will likely be higher. On the other end of the spectrum, expensive building materials used in the construction of your premises would mean higher replacement costs, again resulting in higher premiums.
Business Type
The risks associated with operating certain types of businesses make insuring them a less sure proposition. Restaurants have busy kitchens where, if something goes wrong, the building could burn to the ground. Conversely, operating a small legal practice out of an office wouldn’t trigger the same amount of uncertainty, and the premiums would reflect that.
Loss History
Simply put, insurance companies consider you more likely to file a new claim if you’ve filed claims in the past. Insurers see this prior activity as indicative of future action. And if you’re more likely to file a new claim, you’re more likely to cost the insurer money.
Cybersecurity Threats
While not usually a risk to the property itself, cybersecurity threats are costing the insurance industry a substantial sum of money between recovering from attacks and applying preventative measures. This risk is not specific to the insurance industry and affects large and small.
Social Inflation
When a catastrophic loss happens, it’s only right that you’re fairly compensated. That being said, the recent trend toward increasingly large demands enforced through litigation is costing the industry money, and that cost is being passed on to the insured.
Getting The Best Rate
While rates, in general, are rising, there are still steps available to ensure you secure the lowest possible premium. Here are three of our top tips:
- Calculate how much coverage you actually need: While it might be tempting to over or under-insure, knowing the value of the property, what it contains, and the resulting coverage amounts required should help you decide on the right policy.
- Shop around: Like with most things, taking the time to compare quotes from different insurance providers will likely yield you a better rate.
- Bundle: Buy commercial property insurance as part of a comprehensive business owner’s policy.
Commercial property insurance average costs are going up. There’s no denying that due to a mix of economic and environmental factors, your premiums have been getting and may continue to get higher. That being said, there are some common-sense measures you can take to secure the best possible rate, given market conditions.
For more information or if you’re interested in getting a free commercial property insurance quote, please reach out. We’d love to help you find the perfect policy for your commercial property.
