Pressure Points: Local business owners feel pinch of rising insurance rates

Christa Stephens: Insurance costs are up nearly 40% from 2022.

Joe Gidman: Workers' compensation policy this year is up $27,000 from 2019 rate.

Matt Barton: The current hard market in insurance likely will continue for next year or two.

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Although Christa Stephens, owner of Inviktus Salon, set a goal earlier this year to slightly increase annual revenue to $750,000, higher insurance premiums are helping swell her costs to do business.

For her salon venture, which has three locations, including two in Springfield, Stephens said she has insurance for general liability, workers’ compensation, property, along with accident and limited health coverage. Insurance costs, particularly with the Springfield building she bought three years ago at 2037 S. Waverly Ave. to house her roughly 4,000-square-foot shop, have steadily increased since 2022. Stephens estimated she’s paying nearly 40% more for insurance than she did two years ago.

“I’m almost priced out of my market because I can’t raise one more thing without a client thinking we’re doing it for personal gain,” she said of costs for services, noting insurance rate hikes are compounded by other rising business costs, such as payroll, equipment and rent at her leased locations. “It’s actually just to keep the doors open at this point.”

Commercial property rates rose nationally in the second quarter – up 10.9% year over year, compared to 10.5% in the first quarter. That marked the largest renewal premium hike among several lines of insurance coverage tracked in a July report by Ivans Insurance Services, a unit of industry software provider Applied Systems Inc. Umbrella liability rates increased 9.6%, compared with a 6.8% bump in the first quarter, while commercial auto rates rose 9.3%, up 9.1% from the prior quarter. General liability was up 4.9% in the second quarter.

One insurance line that the report noted had decreased was workers’ compensation, down 1.28% for the quarter. That followed a nearly 1% decrease in the first quarter.

Different reality
Lower workers’ compensation insurance premiums are not the reality that entrepreneur Joe Gidman faces. Gidman, who owns Dutch-style restaurant Van Gogh’s Eeterie, Peruvian restaurant Cafe Cusco LLC and retail shop Chabom Tea & Spices – all on Commercial Street – said he’s seen that line of insurance jump considerably over the past five years as he’s had to raise employee wages to stay competitive in the restaurant and retail industries.

“Your workers’ comp insurance is based on your payroll,” he said. “The greatest increase has been on our workers’ comp insurance, which has pretty much almost doubled since the pandemic. My policy this year is about $27,000 more than what it was in 2019.

“Business insurance rates, when they go up, you’re not talking a few hundred dollars,” he said. “I mean, things increase by the thousands.”

Gidman said most of his insurance policies, which also includes general liability, liquor liability and property, have increased about 20% over the past couple years. He owns a pair of C-Street buildings that house two of his businesses.

“My building insurance, because I’m in a historic district, has actually jumped up more. It’s like 30% because there’s less and less insurance companies out there that want to insure historic buildings,” he said, noting most of his insurance policies are with Illinois Casualty Co., while he uses The Hartford for workers’ comp. “And so, as there’s less people insuring historic buildings, the ones that do are increasing their policies.”

Matt Barton, CEO of nonprofit organization Missouri Association of Insurance Agents, said the insurance industry is stuck in what officials call a “hard market.”

He said as insurance premium rate prices have increased, availability of carriers has decreased, resulting in the proverbial perfect storm for both clients and insurance agents.

“Many carriers are either not looking to expand their footprint in Missouri or are even decreasing the amount of coverage they are willing to write,” he said via email. “We are all trying to ride out this market as best we can.”

The rise of commercial insurance premiums has multiple factors, Barton said. Those include extreme weather events, which can result in catastrophic losses, along with costs for building and repair materials, economic conditions and rising property values.

Gallagher Re, the reinsurance business unit of Arthur J. Gallagher & Co. (NYSE: AJG), noted in a recent report that total insured losses from global natural disasters in 2023 were estimated at $357 billion.

Of that total, private and public insurance covered an estimated $123 billion. It marked the fourth consecutive year that insured losses topped $100 billion and the sixth year out of seven. 

“Commercial property and auto insurance has possibly seen the greatest increase in rates,” Barton said. “So much so that the increases are sometimes measured not from year to year, but quarter to quarter.”

Barton said general liability is a coverage for which consumers are paying significantly more than just a few short years ago.

“Businesses certainly absorb as much of the increased cost of goods and services as possible, including insurance costs, but increases in premiums are also passed down to consumers to varying degrees,” he said. “That’s just simple business economics.”

Shop around
Stephens said she switched to Missouri Farm Bureau Insurance about two years ago after roughly 13 years with State Farm Insurance. She and her husband typically shop around every three years, but she said they are looking now to see what better rates, if any, exist.

“We are going through a broker and having them just look at everything apples to apples and see if there is anything better,” she said. “But we are kind of seeing it across the board, everywhere we go is just higher, higher, higher.”

For Gidman, he said the shopping options for new insurance providers are limited.

“There’s only so many insurance companies that represent certain businesses,” he said. “Illinois Casualty specializes in restaurants and bars. When you’re looking for business liability insurance, a lot of times your insurance is specific to the type of business, so you don’t always have a lot of options. There may only be two or three big players that specialize in insurance for your type of business.”

Expectations within the insurance industry that the higher premium rates will lower anytime soon are low, Barton said.

“I don’t expect this current hard market to significantly soften for at least the next year, if not two,” he said. “Insurance markets are no different than economies overall in that they are cyclical, and eventually the insurance market will soften, as it always does. I’m certainly not naive enough to believe that everything will revert back to the way it was when we were in the middle of a soft market, though.”