30 Dec 2020

Why do my insurance premiums keep going up?

This is hands down the question that company leadership most commonly asks about. It can be frustrating to not know the reasoning behind increased prices for insurance premiums. In this post, we will walk you through the various reasons you may see an increase in your insurance premiums.

Here are the top three reasons:

Hard Business Insurance Market

hard market graphic with insurance premiums increasing

Hard Market – You may have heard the term “hard market,” but what does that mean? A hard market happens when insurance companies experience frequent or drastic financial loss due to the payment of claims. Insurance companies are business too. They must stay solvent and profitable to be able to continue running. Over the last couple of years, the following have caused insurance companies to pull back on what risks they are willing to insure and increase premiums.

  • Sue happy culture
  • Increased natural disasters 
  • Increased Cyber Attacks 
  • COVID 

If you want to read a market update looking forward to 2021, you can find it here.

Increased Exposure

Increased Exposure – A small company has less to lose than a big one. As your company grows, it increases the financial loss that can happen and the likelihood of a lawsuit. Increased exposures equal business insurance premiums going up. Here are some of the top exposure drivers that insurance companies use to calculate premiums.

  • Increased sales 
  • More employees
  • Expanded operations/services 
  • More products being shipped
  • More private information being processed
business insurance claims

The Number of Claims

Claims – This one is simple, the more insurance claims your company has, the “riskier” it is to insure you. The most common type of business insurance claim is Burglary & Theft at 20%, while the costliest type of claim is Reputational Harm averaging $50,000, according to Insurance Journal.

What can I do about insurance premium increases?

There are many ways to protect your company’s valuable profits, but here are some important ones to help save you money. 

Risk Controls

It comes down to having risk controls in place before something goes wrong. Here are a few risk controls that can save in big ways:

  • Train your people: Improving employee training can make a BIG difference. A company with well-communicated standards and training can drastically reduce employee injuries, lawsuits from discrimination, security breaches, damage products, faulty products, etc. 
  • Reconsider your building- Insurance companies typically charge less premium for buildings that have updated roofs, electrical wiring, plumbing, are 100% sprinklered, have Central fire alarms, and central burglar alarms.
  • Report – As a company leader, you already know that things don’t always go smoothly. So, as soon as you find out about something that could cause a loss or lawsuit, contact your independent insurance broker immediately. Many insurance policies have wording that will exclude coverage if a claim is not reported in time or in the right way. You do not want to pay for a policy that could have covered a loss but didn’t because you reported it too late. Counsel with your broker to see if a claim needs to be reported to the insurance company.

Risk Transfer

  • Make others sign agreements- There comes a time in every company’s life when a vendor, client, lender, or landlord makes you sign an agreement. That contract/agreement will commonly come with an insurance section because those outside parties are transferring the responsibility to you. Likewise, you can transfer the responsibility (risk) to your subcontractors, vendors, and manufacturers by including insurance requirements within your agreements. Remember, most insurance policies have wording that only extends coverage to you as an “additional insured” only if there is a written agreement in place. Again, your broker can help you know what insurance limits and wording to use in that portion of the agreement. Always have a lawyer review the agreements before use. 
  • Get a Certificate of Insurance (COI) – Now that you have a contract/agreement in place, you can request a Certificate of Insurance (COI) from that outside entity. A Certificate of Insurance is a document that provides the main details about what insurance a company has in place. It is very common to subcontract work these days. So, make sure whoever is doing work for you is properly insured and has extended you the rights you deserve.

A Reputable Broker

Don’t take our word for it, talk to other business leaders, a good insurance broker can be a valuable asset. Here are some ways a broker can provide value to you:

  • Great Communicator– Your company is unique, and a great broker takes the time to truly listen and learn about it. Understanding a company’s operations is essential to getting the right coverages in place to protect your bottom line. It is also important that your broker can translate insurance jargon. Let’s face it, insurance is another language, so have someone who can explain it. 
  • Great Shopper– The commercial insurance industry is not a one size fits all world. Insurance companies have specialties and appetites. A good broker knows the market and knows when and where to shop to get the best coverage for the best price. 
  • Great Teammate– From business to sports to friends, having someone that has your back can provide peace of mind. At the end of the day, insurance companies are looking out for their best interest. Inversely an independent broker succeeds when your company succeeds. Protecting your company and saving premium dollars so that you can invest in growth, is the goal of every great broker. From negotiating premiums to getting unnecessary exclusions removed, it is important to have the right broker as a teammate. 

At Diversified Insurance Group, we pride ourselves on putting relationships first. It’s important you feel your broker is a great teammate. Hopefully, this post provided more background on why insurance premiums keep going up and what you can do about it. If you would like more information about Diversified Insurance Group, go here.