Business owners, your property insurance rates are projected to climb considerably in 2021. While business property insurance rates have risen each year since 2017, they are forecasted to climb more dramatically as we continue through 2021. The increase of natural disasters and social unrest across the country in 2020 caused high claims and uncertainty for insurance companies. Not only are business property insurance costs expected to rise, but coverages will narrow, meaning less will be protected.
Understanding Insurance Rates
Insurance is the practice of sharing risk – one business sharing risk with another so that coverage is more affordable for all. Although certain claims may not affect a given region, they nonetheless affected the insurance industry. In this way, claims in California can affect insurance rates in New York, albeit indirectly.
2020, A Year of High Losses
So, what happened in 2020 that caused property insurance claims? Surprisingly COVID isn’t a top answer. Although COVID caused many issues for the insurance industry, its effect on property insurance was small in comparison to other events.
Natural Disasters: $268 Billion*
Many natural disasters took place, including over 58,000 wildfires across the West Coast, hundreds of tornadoes in the Northeast and Southeast, and hailstorms in the Midwest. In addition, many hurricanes hit the East Coast, including Hurricane Laura which cost up to $15 billion alone. Catastrophes such as these are projected to worsen in the future, further increasing business property insurance costs.
The riots and civil unrest of 2020 cost more than any prior civil disorder in U.S. history. These events took place throughout the country, often in previously peaceful communities, and damaged or destroyed many businesses, their buildings, and other property. Cities fell victim to uncontrolled vandalism, theft, and property damage. Even businesses whose property was not damaged were forced to close or alter hours for the safety of their clients and employees. The extent of such a loss was never considered when these policies were issued, but must be going forward.
What to Expect
Business property insurance costs are expected to increase 5% to 25% in 2021, depending upon the property. Some forecasts are as high as 40% for those with poor claims history. Coverages are also becoming stricter. Actuaries – the statisticians who determine insurance costs – are including risks in their calculations that were previously considered unlikely. Some insurance companies are restricting coverages in the following areas:
- Riot, strike, and civil commotion
- Business interruption claims where physical damage did not occur
- Business interruption for communicable diseases
These exclusions would appear to lead to a less expensive policy since less coverage is provided, but they do not. Instead, these changes only partially counteract the higher rates caused by the growth in natural disasters and riots. As claim payouts grow in response to these uncontrollable factors, insurance companies are tightening their hold on coverages in an effort to be profitable. Another step they are taking is to increase deductibles.
Course of Action
The business property owner must implement strong risk management practices while also purchasing sufficient coverage. Proper risk management strategies can greatly reduce insurance costs. For more information on risk management, contact a Bankers Insurance agent.
While businesses can’t stop civil unrest, weather events, or a highly contagious virus, knowing the potential impacts should influence how they buy insurance. Identifying key risks now means planning for the unthinkable. Business property owners have decisions ahead as they face new threats and remain vigilant against old ones. Resist the temptation to compromise on insurance coverage, despite the rising costs predicted.
Questions regarding business insurance coverage? Contact your Bankers Insurance agent. Not a client of ours? Let us earn your business! Each client is assigned a personal agent in our office and provided a phone number that rings right on their desk.
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* NU Property Casualty 360, 2020 Natural Catastrophes Triggered $268B in Economic Losses Globally