As a small and medium-sized business (SMB) owner, running a business in our current inflationary economy is not easy with prices increasing. Unfortunately, with the current insurance hard market, premiums are also increasing, which especially negatively impacts smaller business. To help you mitigate your costs, in this post, we’ll share several tips that help control your business insurance cost.

To get the full picture, we’ll explore:

  • The dynamics of a hard insurance market and its impact on SMB insurance.
  • Three effective and actionable ways to reduce your small business insurance rates.

What is a Hard Insurance Market?

In insurance, the term “hard market” refers to a period when coverage availability decreases and premiums increase. Insurance carriers become stricter in their underwriting criteria and adjust their rates and coverage offerings to lower their risks.

The hard market we’re currently seeing has been caused by several factors:

Lowered Interest Rates

Insurance companies typically make money through two main streams of income: premiums and the return on investments made with that money.

In recent years, due to the pandemic and other economic factors, persistent low-interest rates have diminished the money these investments could generate. This has forced insurance companies to raise premiums as they start to rely solely on this specific source of revenue.

Increased Natural Disasters

An unprecedented rise in hurricanes, wildfires, and floods nationwide has also led to higher-than-usual payouts, straining the resources of many insurance companies. This has also drastically changed coverages driving up business insurance cost by about 21-35% on average, and in some cases even 100%. In fact, in certain parts of the U.S. insurance carriers are refusing to renew certain policies and other insurance companies simply went out of business because losses exceeded their profits.

Inflation and Rising Replacement Costs

Adding to these challenges is the recent surge in inflation. This has led to a significant increase in the cost of materials and labor, directly impacting building replacement costs. For businesses that haven’t revisited their building values in a while, they could be looking at up to a 20% increase to adequately insure their properties to their current replacement value. Talk to your insurance advisor to make sure you have sufficient coverage on your business properties before you experience any potential damage to your buildings.

Best Practices for Managing Business Insurance Premiums

Despite the state of the market, savvy owners who are committed to lowering their business insurance cost can absolutely do so. Here are three strategies that you should implement to help you control the increase of insurance rates for businesses:

Involve Your Broker in Your Business Plans

Because insurance can be a headache, many business owners tend not to prioritize their communication with their brokers. But keeping your broker in the loop can help you save money and better budget for any cost increases. Here are three examples of how:

  • Signing Lease Agreements: If you are leasing an office or a building, having your broker look over potential leases will help you determine how much of the structure you will be responsible for insuring. This can help you avoid signing a lease where you shoulder more of the cost burden than you are comfortable with.
  • Managing Growth: A massive expense, Workers’ Comp (WC) insurance can account for up to 50% of an SMB’s total business insurance cost. The rates for WC are calculated based on a complex equation that determines the risk for each job description based on the state they operate in. Thus, how many employees you have, and your overall payroll are key factors in that calculation. So, if you plan to hire new employees or issue raises to existing ones, you should inform your broker, so they can help you calculate the potential impact on your WC rates. This way, you’re not financially blindsided and can factor them into your growth strategies.
  • Managing Market Factors: In our current inflationary market, businesses that have consistently updated their broker about new equipment purchases or business upgrades have been able to manage their costs more effectively. By doing so, they have avoided being surprised by the coverage rate increases and had ample time to adjust their budgets accordingly.

Conduct Regular Inspections and Maintenance for Loss Prevention

Regularly scheduled maintenance is also crucial to lowering business insurance cost. Here are four easy-to-maintain areas, but can result in costly claims if not inspected regularly:

  • HVAC: Faulty systems can lead to significant issues like poor air quality, fire hazards, or water damage. Ensure filters are changed, ducts are clean, and the system is running efficiently.
  • Electrical: Electrical faults are a common cause of fires. Regular inspections should focus on outdated wiring, overloaded circuits, and faulty electrical equipment.
  • Plumbing: Leaks and burst pipes can cause extensive water damage. Regular checks should include looking for signs of leaks, ensuring pipes are in good condition, and checking that drainage systems are clear.
  • Roof: A compromised roof can lead to water damage and structural issues. Regular inspections should look for missing or damaged shingles, gutter blockages, and any signs of a leak.

Make sure to also document any repairs or upgrades, so your broker can factor this proactive behavior into your premium calculations going forward.

Implement a Culture of Safety

Your business insurance cost is always going to be based on your track record – that is how much risk your business presents, which means how many claims you’ve submitted to the insurance carrier. So, taking a proactive and systematic approach to safety is in your best interest. Companies that foster and develop a culture of mandatory, documented safety practices are far less likely to experience injuries and accidents. And more likely to have less expensive premiums as a result.

Since most businesses have employees, buildings, and business vehicles, I highlighted only those three areas in this post:

  • Employee Safety Policies: Most companies have many types of job roles, each with its inherent safety risks. So, you might need different employee safety policies for your business to better clarify employee job responsibilities in maintaining a safe and productive work environment and help reduce preventable on-the-job injuries.
  • Building Safety Checklist: Buildings will always face deterioration, but a building safety checklist can help you identify which areas of concern require constant monitoring.
  • Driver and Fleet Safety Policy: Motor vehicle accidents are the leading cause of work-related fatalities, which can be extremely costly for a business. This policy can help reduce risky driver behavior and define the factors you can control to reduce unnecessary loss, injury, and death.

Using policies and checklists like these helps establish an environment where safety on the job is everyone’s shared responsibility.

To get you started, download our free e-book “Policy Templates and Checklist for Workplace Safety”. 

Workplace safety checklist and templates

The bottom line is that by implementing proactive safety and maintenance practices and keeping your insurance brokers consistently in the loop, your business can signal to insurance companies that you aren’t high-risk. And in turn, this positive track record could be reflected in your business insurance costs.

If you have any questions about the information above or need a walkthrough of any of the concepts in our Policy Templates and Checklist for Workplace Safety e-book, don’t hesitate to contact me at 

Need a more comprehensive strategy to manage your rising business insurance rates?

Download our free e-book “How to Mitigate Rising Insurance Rates Across Your Policies”, which provides:

  1. Tips on getting the most commercial insurance coverage at the best price possible.
  2. Risk management strategies to implement because underwriters appreciate you taking every precaution to reduce risk.
  3. Strategies on hiring qualified talent and improving your workforce’s health to positively impact your insurance rates and overall business costs.