In the context of economic uncertainty, commercial property insurance rates are on a steep climb — again. But, why is this phenomenon happening? Instead of one single factor driving up the costs of commercial property insurance, there are several reasons why we’re seeing an increase in insurance rates for this market sector. Here are the six forces responsible for the increase in commercial property costs and what property owners should be on the lookout for.
1. Catastrophe Losses Results in Yearly Damages
An average of 6,800 natural disasters occur worldwide each year. Commercial businesses aren’t exempt from the consequences of natural disasters, accounting for the second and third most common reasons for filing a claim. The severity of hurricanes, flooding, and tornadoes continues to increase, resulting in billions of dollars in yearly damages.These high-cost claims end up leading to higher premiums.
2. Difficulties in Reinsurance
The increased occurrence of natural disasters in previous years has led to increased claims by commercial property owners. Because insurance companies are paying out more claims, they’re more selective about the policies they sell, giving less room to negotiate or price shop insurance rates. This, in turn, drives up the rate for commercial property owners when renewing their policies.
3. Spikes in Property Replacement Costs
Commercial business owners increase their policy limits as property values continue rising. Inflation and increased prices of household goods mean it costs more than in previous years to repair or rebuild a property, driving up insurance costs.
4. Underinsured Policyholders Face Larger Costs
Despite increased repair and replacement costs, many commercial insurance policyholders haven’t yet increased their insurance coverage. Underinsured policyholders might also have higher deductibles to offset the costs of coverage.
5. Labor Shortages Drives Up Costs in Policy
Construction equipment and materials aren’t the only shortages driving higher commercial property insurance costs. A labor shortage of skilled workers also means policyholders must wait longer to receive repairs, and the higher demand for services drives up the cost of a policy.
6. Property Demand Remains High
The demand for commercial properties remains high despite more catastrophic natural disasters and an increased cost of goods. This leads to insurance carriers increasing prices to make up the difference resulting in higher commercial property costs.
Understanding the six forces driving commercial property insurance costs allows you to create a comprehensive policy for commercial property owners. Read more about the six forces that are driving up commercial property costs here. Have questions? Contact a Quaker Special Risk insurance agent today for assistance with writing customized and affordable commercial property insurance policies.