Being a business owner is something many people dream of – whether it’s the joy of being your own boss or turning your passion into your livelihood. And while it can be incredibly rewarding to run your own business, it also comes with many responsibilities and costs – which you’re responsible for at the end of the day.
One of the necessary costs of doing business is ensuring that you have the proper insurance coverage in place for your business. In today’s challenging marketplace, many Canadian business owners may notice an increase in their insurance premiums, even if they have a spotless record.
Why is this happening?
Many factors go into determining the insurance costs for your business. Some are within your control, such as good risk-management practices. However, there are many factors that impact your rates over which you have very little control. One of those factors is the current market conditions we are experiencing – known in the insurance industry as a hard market. Hard markets can make it more difficult to find affordable insurance coverage for your business. This can be frustrating for customers who are claims-free and always pay their bills on time.
In this article, we’ll explain how the current market conditions may be affecting your insurance premiums. We’ll also share a few tips that can help you manage your insurance bill, without compromising your coverage.
What is a hard market?
Simply put, a hard market occurs when the demand for insurance coverage needed is higher than the supply of coverage available by the insurance companies.
The insurance industry is cyclical and hard markets come and go for various reasons. Right now, there are a few factors that can help explain the market conditions that the insurance industry is experiencing.
Increase in claims costs
More frequent and expensive claims can lead to higher insurance costs for everyone. In recent years, claims costs have been impacted significantly by:
- Damage caused by natural catastrophes, including: wildfires, hail, floods and storms (winter, wind)
- Increased liability awards paid out for claims made against businesses, due to: slip and fall; errors and omissions and directors and officers
- Costs associated with automobile accidents, including higher accident benefit costs and a rise in repair costs due to changing technologies in cars
All of these factors contribute to higher costs for insurance companies, which can lead to higher rates for customers.
Low interest rates
We rely on insurance companies to be there when we need them most. Insurance companies must make sure they have enough money to cover the claims of their customers – especially in the event of a major catastrophe! So, in addition to the premiums they receive from their customers, insurance companies also rely on investment income earned.*
Currently, interest rates in Canada are very low, which results in a lower return on investment. As a result, when there is less income from investments, insurance companies may be stricter about the risks they can take on, and the capacity to handle more customers may be lowered.
*Insurance companies are legislated to only make low-risk investments.
Reinsurance companies are increasing rates
Every business needs insurance – even insurance companies! This type of insurance is called reinsurance. Reinsurance companies have also been raising their rates, which trickles down to impact the insurance customer’s average rates as well.
How can I manage my business insurance costs effectively?
As a business owner in today’s marketplace, you may have either experienced a premium increase upon renewal, or you’ve experienced challenges finding the insurance coverage you need for your business. This is especially true if you have a new business. In these current market conditions, insurance companies may prioritize protecting existing customers over taking on unknown risk.
Fortunately, there are a couple of significant measures you can take to manage your insurance costs:
Talk to your broker
Your broker is your best source of expertise when it comes to helping you manage your insurance costs while making sure you have the right coverage in place. If your business has evolved, you may be able to tailor your existing coverage to something more affordable. You may also consider increasing your deductible. A conversation with a trusted broker can help you find creative ways to save.
Don’t leave insurance to the last minute
In the current market, it takes more time to secure a quote for your business. There is high demand for quotes right now, which keeps insurance companies busy. It can take weeks, or even a few months to come back with a quote. If you’re looking to insure a new business, make sure you give your broker as much notice as possible.
Establish strong risk-management practices for your business
Ensure your workplace is as safe and hazard-free as possible to avoid claims such as slip and fall and other liabilities. Increase security by installing proper security measures, including proper lighting, locks and cameras. Don’t forget to secure all customer data! Depending on the type of business you own, you may also consider initiating education and training programs for your employees. Upgrading equipment for efficiency and safety can also lead to cost savings.
When will these current market conditions end?
It’s difficult to say how long this hard market will last. For many insurance brokers, this is not their first hard market but they have the expertise to help you navigate your way. Rest assured that insurance markets are cyclical and eventually, we will all be on the other side of it.
If you have questions about your insurance policy, or if you’re looking for insurance advice for your business, talk to a BrokerLink expert. We will help you find the coverage you need to protect yourself and your business.