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FACTORS ABOUND: Casey Chastain with Higginbotham Insurance Agency says weather-related losses, inflation and labor shortages are among factors impacting commercial property insurance costs.
Tawnie Wilson | SBJ
FACTORS ABOUND: Casey Chastain with Higginbotham Insurance Agency says weather-related losses, inflation and labor shortages are among factors impacting commercial property insurance costs.

Weathering the Storm: Natural disasters contribute to rising commercial property insurance rates, officials say

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Insurance premium renewal rates – particularly with commercial property – are on the climb, and local industry officials say higher costs are unlikely to change anytime soon.

Among several lines of insurance coverage tracked nationally by Ivans Insurance Services, a unit of industry software provider Applied Systems Inc., commercial property average rates rose 10.4% in October, compared with a 9.9% increase in the prior month. Additionally, commercial auto was up 8.5%, an increase from the 7.4% jump in September, and general liability rates rose 5.7% – up from 5.3% in the previous month.

Casey Chastain, managing director with Higginbotham Insurance Agency Inc., said he’s seen some significantly high commercial property premium rate increases this year. He noted one unidentified client came to Higginbotham from another insurance agency after the business was hit with a 51% increase – a rate hike Higginbotham got reduced to 27% with the same carrier.

“No one’s happy about the premium increases, and that’s why they’re moving to more of a broker selection and looking at creative ways to reduce those costs,” he said.

Ollis/Akers/Arney CEO Richard Ollis said no line of insurance coverage seems to be immune from increases the industry is seeing.

“However, there’s no question that property is the one that is the most significant as far as increasing costs,” he said, noting his agency is seeing a year-over-year rise for commercial property premium rates ranging 8%-14%.

Weather impact
Ollis said the cost to replace commercial buildings, as well as homes, has grown exponentially over the last several years, and weather-related natural disasters have significantly impacted the insurance industry.

According to a report from Gallagher Re, the reinsurance business unit of Arthur J. Gallagher & Co. (NYSE: AJG), total insured losses from natural disasters in 2022 were estimated at $140 billion, of which $125 billion was covered by private insurers. The other $15 billion was covered by public insurance entities such as the U.S. National Flood Insurance Program. Last year was the fifth time since 2017 that weather-related losses topped $100 billion, according to the report.

“Since we’re in 20 states, we’ve been observing this and its national and global impact,” Chastain said. “The weather losses drive the fact that the premium received isn’t sufficient for losses paid out on weather.”

Tiffany Lafferty, property and casualty manager at Croley Insurance & Financial Inc., said her company works with many different insurance carriers. On the commercial property side, the annual rate increase is averaging about 25%.

“Just because we live in Missouri doesn’t mean just the natural disasters in Missouri are the only thing that affects us. The natural disasters throughout the United States are what’s affecting us,” she said, noting that includes wildfires, floods and hurricanes. “Inflation has also hit the insurance side of things. Building materials, higher-than-average labor costs, construction costs – those all are playing a big factor into our rate increases.”

Chastain said even with construction companies offering higher wages and salaries, he hears many contractors still struggle to find enough skilled labor. He said that issue, combined with higher building costs and reinsurance challenges, is “a perfect storm” contributing to rising insurance rates.

Mitigation advice
“It’s really a time in the market to have a good agent or adviser help you – for lack of a better word – position your business so that it’s getting the very best insurance program in the marketplace,” Ollis said.

To help mitigate costs, he said building owners should consider having a deferred maintenance program to stay on top of replacement for aging heating, ventilating and air conditioning units, roofs and plumbing. Lafferty added some insurance companies offer discounts on commercial property that have security systems installed.

“The thing that building owners can do is to really keep their property well maintained,” Ollis said. “Obviously, an account without losses is going to be more attractive than an account with losses. Do the best that you can to be attractive to the insurance marketplace.”

Business owners also should be open to raising deductibles, Ollis said, which can cover areas such as property, vehicles and health insurance, to absorb some of the rate increases. In the health insurance arena, he recommended looking at plan designs that can manage costs like health savings accounts, in which employee bases can be engaged to pay for qualified medical expenses.

There also are alternative health funding options such as one offered by the Missouri Chamber of Commerce and Industry, a joint effort between the organization and local chambers of commerce designed to help small- and mid-sized employers combat rising health care costs. Annual family premiums for employer-sponsored health insurance climbed an average of 7% in 2023, according to a survey from health policy research firm KFF.

The Chamber Benefit Plan uses a multiple-employer welfare arrangement model to enable small businesses to join together and share in the overall claims risk by being part of a larger self-funded pool. Since its 2017 debut, the plan, which is offered to Missouri businesses with 2-50 eligible employees, has grown to nearly 4,000 groups and covers 45,000 people, according to the state chamber.

When it comes to rate shopping with insurance carriers, Ollis said he recommends every three to five years.

“What we recommend is let’s get you with a carrier that specializes or is an expert in your type of business,” he said. “That’s getting placed with a carrier and becoming more attractive and becoming a partner, so to speak, with your agent. Frankly, we see that strategy working a lot better than going out every year, shopping and moving for [saving] a buck or two.”

Croley Insurance reviews its clients’ policies every time they come up for renewal, Lafferty said.

“We make sure they’re getting the best rate and best coverage they possibly can with the carrier that they currently have,” she said. “We then go to our other carriers just to be sure there’s not a better option out there for the client.”

The uncertainty of future catastrophic weather events, inflation and reinsurance challenges makes Chastain hesitant to make any predictions on whether rate increases will continue well into 2024 or beyond. In 2022, there were 18 confirmed weather or climate disaster events in the U.S. where overall damages reached or exceeded $1 billion, according to the National Oceanic and Atmospheric Administration. As of early November, that number this year has increased to 25.

“I didn’t hear anyone three or four years ago predicting what’s happening now and the significant change in weather losses,” he said.

However, Lafferty said she’s heard industry talk that there could be some leveling off for rates within the next six to eight months as inflation dropped from a year-over-year rate of 3.7% to 3.2% in October.

“It’s just usually with inflation, that tends to hit insurance last. It is hitting us now with the cost of construction, building materials and everything like that,” she said, noting that this is well after the construction industry sustained increased costs. “It’s hit us later, but we’re trying to take care of our clients and make sure we’re doing the best for each individual.”

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