Why Do Business Insurance Premiums Keep Fluctuating

Businesses keen to invest in insurance as part of their risk management approach may notice insurers are pickier about offering cover and premiums are rising.

That’s because we’re now in a hard market. When that happens, it means that the cost of insurance is higher and insurers tend to focus on the better managed risks.

What does a hard (insurance) market mean for you?

A hard market is much like you’ll find in the property market when sellers have the advantage. A hard market in insurance means insurers can afford to:

• Say ‘no’ to high-risk businesses.
• Narrow their policy wording so there is less cover available to you than previously
• Boost the number of exclusions
• Demand a higher premium.

Impacts of inflation

Inflation occurs as prices rise over time. The key indicator – the consumer price index – is sitting at an annual rate of 7% as of late April. It’s down from a 32-year high of 7.8% for the December quarter last year.

Higher inflation means the cost of living and doing business rise. For example, when building, raw materials, and labour costs rise, insurance payouts to repair or replace your insured assets must also increase.

If you have a business vehicle, you might have noticed that insurance is now more expensive, too. Labour shortages at repair shops, supply chain issues and higher automobile prices drove inflation to bump up those premiums. Consistent with that, a major insurer reported a halving of its car insurance profit margins in February.

Other factors (like fraudulent claims)

According to professional services firm, KMPG, and other sources, here’s what else affects business insurance premiums:

• Greater frequency and intensity of natural hazards (such as storms, flooding and bushfires)
• Increasing costs, such as for building suppliers and other items needed for doing business
• Economic uncertainty and downturn which impact the market for insurers and policyholders
• Crime, as this ABC report from Queensland shows
• Fraudulent claims.

KMPG’s Australian office has forecast a 10% rise in insurance premiums this year. Check their report to learn more about the 10 factors underpinning their forecast.

What action is the Insurance Council taking?

The Insurance Council of Australia (ICA) is keen to make premiums more affordable. While there’s no quick fix, it argues for the need to reduce or mitigate existing risks. In its Building a More Resilient Australia report, it called for:

• Federal funding to be doubled to $200 million annually for household retrofits and community protection projects with states and territories matching that amount
• Improved land use planning to prevent development in vulnerable areas
• Building resilience included in the National Building Code, and
• A removal of state taxes and charges on insurance, which inflate premiums.

The ICA cited a Queensland and Federal governments’ program to enhance the resilience of properties in the face of extreme weather. The program reduced premiums by up to a quarter.

Meanwhile, the NSW government has intervened to stop workers’ compensation insurance premiums from rising by 20% on average. The state insurer, icare, will limit premium hikes to 8% in each of the next three financial years.

Options: Are you risk averse?

Despite the hard market, you have options to find appropriate cover that suits your budget. A simple approach would be to reduce coverage, increase your excess or even try to self-insure, but there’s a smarter way. In a hard market, businesses can:

• Revisit their risk management assessment plans and adjust your approach to risk
• Boost security of your premises and cyber assets, and bolster resilience against extreme weather to help lower risks and therefore premiums
• Review policies now rather than at renewal
• Seek advice about risk management and insurance options.

If you feel the premium is too high, check in with us, as your insurance broker or adviser, for clarity on what exactly it covers. If your business has changed in some way since originally taking out the policy, there may be coverage you don’t need. Insurers are also increasingly embracing artificial intelligence to better predict their risks, margins and losses and update their insurance products.

Get in touch about your current needs so we can update your policy and negotiate the best rate on your premiums and cover.

Article supplied by OneAffiniti

Photo by Kanizphoto on Unsplash