Business insurance provides vital financial protection for small businesses. If you are a business owner and don’t have proper coverage, obtaining it should be a top priority. Similarly, if you have business insurance but aren’t sure if you have high enough limits or the right types of coverage, it is important that you research providers and the policies they offer and take action as needed.
If you have looked into small business insurance in the past, you may notice that prices tend to be higher today. Why is that? We turned to insurance industry veteran Peter Shelley for answers. President at biBERK Insurance, part of the Berkshire Hathaway Insurance Group, and also an actuary, he provides his insider’s perspective on insurance costs below.
HBT: As background, are insurance price increases typically permanent, or do prices alternate between increases and decreases?
Shelley: Business insurance prices typically fluctuate over time, so coverages that are having increases today could have lower costs at some point down the road. While economic conditions do impact business insurance costs to a degree—like inflation that currently is making it more expensive to repair cars and buildings due to higher prices for materials and labor—price changes are typically more influenced by insurance-related trends such as weather pattern changes, driving behavior, and the legal and regulatory system.
HBT: Do small business owners tend to see insurance increases across the board when prices are rising in general?
Shelley: Not necessarily. For example, today we’re in a period of rising prices, generally speaking, but workers’ compensation insurance costs have actually been decreasing.
HBT: In what types of coverage, specifically, are business owners finding rising costs?
Shelley: This can vary based on the industry the company is in, its geographic location, and other factors, of course, but it’s common today to see increases in commercial auto, general liability, and property coverage.
HBT: Why are these increases occurring?
Shelley: In commercial auto and general liability, the cost of injury-related claims—either injuries associated with a business’s operations, like accidents in business-owned or leased vehicles, or caused by a company’s products—have increased due to larger jury awards on claims involving serious injuries.
This is a phenomenon sometimes referred to as “social inflation,” and the awards granted also have a trickle-down effect, increasing the cost of claims related to less-serious injuries. As for property claims, there has been an increase in 2021 both in the number and size of natural disasters that have produced substantial losses. Hurricanes, other powerful storms, wildfires, and the “Texas freeze” are just a few examples.
HBT: Are there other factors that are currently affecting insurance costs?
Shelley: Yes. New and evolving risks, like the growing threat and cost of cyberattacks, also are driving up insurance costs.
HBT: The causes of higher costs that we’ve covered are all outside the control of business owners. Is there anything they can do to help keep their costs down?
Shelley: Absolutely. Operating more safely and accident-free can help a company keep its insurance costs down, both in the short term and the long term. By that, I mean that preventing accidents today means you’re avoiding having to pay deductibles, but also, a company’s claims history is factored into the premiums they pay when they buy or renew coverage, so reducing claims helps keep premium costs down.
How do you reduce claims? There are many ways to do that, including training employees so that they are prepared to perform their jobs correctly and safely, defining and documenting rules for the safe operation of company vehicles, etc. The biBERK website has a whole section dedicated to resources that help businesses operate more safely.
In addition, insurance is a competitive marketplace. Consequently, business owners can be confident that insurance companies like biBERK are continually working to control costs while still providing great protection and attentive service.
The Cost of Business Insurance vs. the Cost of Liability or Damage
As a small business owner, you want to keep your expenses to a minimum. The amount you pay for insurance is no exception.
However, when you consider the cost to an insufficiently insured company of even one liability lawsuit, for example, the small amount paid for coverage is minimal. Plus, being properly protected from large financial burdens delivers powerful peace of mind that helps business owners sleep better at night!
About Peter Shelley
Peter Shelley is president at biBERK, part of Warren Buffett’s Berkshire Hathaway company. biBERK specializes in commercial insurance for small businesses. Shelley plays a pivotal role in defining the company’s business strategy and driving innovations that make it easier to get excellent coverage, great rates, and outstanding customer service.