Inflation is impacting businesses everywhere, and your business insurance is no exception. Things are just getting more expensive, and if you’ve noticed your insurance premiums climbing, the reason is straightforward: the cost for insurance companies to cover claims has significantly increased. In this article, we’ll break down exactly how inflation affects your business insurance premiums and what you can do to control these rising costs.
Why Insurance Premiums Rise with Inflation
At its core, business insurance premiums are based on the expected cost of covering future claims. When inflation drives up prices, the cost of those future claims rises too. These higher costs, whether it’s for repairing a commercial vehicle, rebuilding a store, or covering an employee’s workers’ comp expense, are then reflected in higher premiums. This ensures insurance companies can maintain financial stability and continue to meet their obligations to policyholders if they ever need to file a claim. Consider these key statistics in our economy where inflation directly impacts your premium:
- Commercial Auto Repair and Replacement: Businesses relying on vehicles are particularly affected. For instance, vehicle maintenance and repair has increased, showing a +5% rise from 2024 to 2025. This isn’t just about vehicle parts; it reflects the higher cost of specialized labor from mechanics and advanced technology in commercial fleets, making collision claims significantly more expensive for insurers.
- Construction Material and Labor Costs: If your business property is damaged, the cost to repair or rebuild has surged. A report shows nonresidential construction is about 40.5% higher than in February 2020. From lumber and steel to specialized contractors, every element of construction has become more costly, directly impacting business property insurance payouts.
- Healthcare / Medical Costs: Healthcare inflation directly affects workers’ compensation claims, with national health spending increasing by 7.5% in 2023 alone. This includes rising costs for diagnostics, prescription drugs, and provider fees, making each claim more expensive for insurers to cover.
Let’s Take a Look Back
To truly grasp this inflationary shift, let’s take a step back five years ago. A standard delivery van might have cost $35,000 new. Today, that same model could easily be $45,000 or more. Additionally, the parts and labor to repair it after a minor accident could be 20-30% more expensive due to higher parts costs and increased wages for skilled mechanics.
And it’s not just physical assets. Think about your team. Five years ago, if an employee suffered a workplace injury, the medical bills were one thing. Today, those healthcare expenses are notably higher, driven by increased provider costs, prescription drug prices, and the overall complexity of medical care. Nearly every aspect, from the cost of repairs to employee wages and their medical care, now makes each claim more expensive for insurance companies to cover.
How Inflation Affects Different Types of Business Insurance:
Inflation impacts more than just one area of your business insurance. Below, we’ll break down how it affects different types of business coverage:
- Commercial Auto: When inflation rises, the cost of repairing or replacing vehicles skyrockets. That includes vehicle parts and labor from mechanics all push premiums higher. For businesses that rely on vehicles for operations, this means higher costs to maintain coverage.
- Commercial Property: If your business property is damaged and needs repairs or rebuilding, the cost is much higher than it was a few years ago. This drives up your insurance premiums, as insurers adjust rates to match the higher cost of building materials and construction labor.
- Workers’ Compensation: Even if workplace injury rates stay the same, the cost of treating injured employees skyrocketed. Medical inflation and increased wage replacement costs mean that workers’ compensation premiums are climbing as well.
- General Liability: Inflation also affects the cost of liability claims. As the price of goods and services rises, so does the cost of legal defense, medical treatment, and compensation for damages. This can result in larger settlements and judgments in liability cases, particularly for businesses in high-risk industries, which drives up the cost of general liability premiums.
Strategies for Business Owners to Combat Rising Insurance Costs
We understand that rising premiums are frustrating. The good news? There are strategies to help control your business insurance expenses:
- Review and Update Your Coverage: Don’t let outdated coverage leave you underinsured. Rising costs mean your current policy limits might no longer reflect the true value of your assets. Review your coverage regularly to keep it aligned with replacement costs.
- Raise Your Deductibles: Increasing your deductible can help lower your premium. Just make sure you have the financial cushion to cover a higher out-of-pocket cost if you need to file a claim. The trick is to review the trade-off between higher deductibles and lower premiums.
- Invest in Risk Management: Reducing risk means reducing claims. Perform regular vehicle maintenance, fortify your property, and prioritize employee safety. These measures can lead to fewer claims and potentially lower premiums.
- Shop Around: Even if you’re happy with your current provider, it pays to compare. Rates vary between insurers. Ask your agent to review your policy or explore better options for your business.
- Bundle Policies: Having multiple policies with the same insurer, such as general liability, property, and workers’ compensation, can often get you a discount. Bundling saves money and simplifies your insurance management.
Can Insurance Companies Charge Whatever They Want?
It might feel like insurers can increase rates whenever they want, but that’s not the case. Like other industries, insurance is a heavily regulated industry. Providers must justify rate increases, and in many states, those increases require approval from the state’s Department of Insurance. It is the Department of Insurance’s responsibility to ensure fair premiums for all consumers while also ensuring insurance companies can pay out claims and remain financially stable. This regulatory oversight ensures that premium increases are based on data, not profit motives alone. For example, California recently approved rate increases for major carriers like: State Farm (+22%) and Allstate (+34%).
Get a Business Insurance Quote with AIS
Inflation is unavoidable, but that doesn’t mean rising insurance costs have to derail your business. At AIS Insurance, we help business owners stay informed, prepared, and protected. Whether you’re reviewing your current policy or looking for better rates, our team is here to help. Give us a call today, at (866) 570-7335 to shop your business insurance policy and find ways to save.
The information in this article is obtained from various sources and offered for educational purposes only. Furthermore, it should not replace the advice of a qualified professional. The definitions, terms, and coverage in a given policy may differ from those suggested here. No warranty or appropriateness for a specific purpose is expressed or implied.
