If you’re a small business owner that has noticed a sudden jump in the price of your insurance policy, you are not alone. Insurance premiums are on the rise and coverage may have changed for different policies, with some insurers potentially excluding certain types of risks and lowering policy limits.
And the question that is on the lips of many Australian small business owners is, “why? What is with the increase?”
We get where you’re coming from. A price increase on such an essential thing as business insurance sucks. Especially at a time when everything seems to be getting more expensive, it really hits you right where it hurts… your wallet.
Read on to find out four reasons why your insurance premium may be on the rise.
1. We are in a hard market
The insurance industry is in a continuous cycle fluctuating between a soft market and a hard market. There are several factors that help determine what stage of the cycle the insurance industry is sitting.
During a soft market, competition ramps up among insurers as premiums decline or remain stable.
Essentially, small businesses can get more bang for their buck as more insurers enter the market and they relax their policy criteria and increase policy limits to win customers who are shopping around.
Soft markets in the insurance industry typically occur during a growing economy with low claims activity and an abundance of funds to insure.
On the other hand, a hard market is when the industry is in an upswing. Insurers pull out of the market, premiums rates are increasing, and insurers tighten their conditions and reduce coverage.
2. It’s been the perfect storm of conditions
From the 2020 bushfires to the floods in 2022 across NSW and QLD, we’ve been hit by multiple catastrophes in recent years.
These catastrophic events impact the amount of claims activity, which in turn has resulted in an increase in your premiums for certain types of cover.
Natural disasters are usually cyclical in nature and insurers have decades of historical data to factor in these risks when calculating your policy. But the recent severity and frequency of these events have made it difficult for insurers to forecast how much they are likely to pay out in claims if a new event were to happen.
This caused insurers to reconsider the amount of risk they are prepared to take on as they are hit with this newfound uncertainty.
3. We are facing economic changes
Another reason your insurance premiums may be increasing is due to the many external economic forces at play that affect insurers . One of the most significant issues is around the supply chain, with labour costs and materials significantly increasing in price, which impacts on the amount the insurer needs to pay out for a claim.
Other factors that may contribute to economic changes are the Covid-19 pandemic, inflation, and changes in interest rates. All of this means more financial pressure on insurers, which often results in higher premiums for you.
4. There are internal obstacles
Higher compensation rates along with litigation-happy law firms are some of the obstacles insurers must contend with within their internal operating environment. A recent tactic is for third-party investors to pay for a client’s legal fees in exchange for a portion of the client’s payments if they win.
Many law firms also have a no-win no-pay strategy to attract and encourage small business clients to follow the path of litigation rather than settling out of court.
While this may be great for that one client in the short term, it actually will increase premiums in the long run when this process gets repeated time and again. This is because higher claims activity generally results in higher premiums as insurers will view the claimable event with a higher risk profile.
What can I do now?
Knowing the reasoning behind possible price increases can provide context to your business situation so you can make an informed decision about your policy.
Business insurance can often be essential – if not mandatory – for many Australian small businesses so it may be a good idea to consider the risks your policy protects you from before you decide to cancel.
A claim made against you could have significant financial implications to you and your business. Therefore, it may be worth considering whether the increased price of your policy justifies the risks it is designed to protect you from.
At the very least, it could be a good time to review your policy documents to understand your current level of cover.
At BizCover, we make business insurance easy for small business owners like you.