Why does my insurance always seem to increase?
We hear this question a lot. Cost always matters and that’s why business owners, CFO’s and controllers alike are always asking us “Will my insurance increase this year?”. The answer is it depends.
Like any product or service, insurance pricing is always subject to change. There are countless factors that come into play when understanding why, when, how, when and where insurance rates increase.
Uniquely within the industry, all of the brokers at ALIGNED Insurance specialize exclusively in commercial insurance. This means that we focus our attention on changes in the Canadian insurance marketplace that may lead to price increases.
We wrote this post to give you some insights into what to expect when it comes to insurance increases in 2020 and beyond…
First things first. Here’s the typical insurance formula…
Individual Risk Factor / Exposure Base
(i.e. replacement cost of property, revenue)
x
Insurance Rate
(on a cost per $100 or $1,000 of exposure)
= Insurance Premium
The what. 7 reasons why business insurance costs increase…
Common rate increase triggers. While not an exhaustive list, here’s some top reasons why your business insurance increase may be inevitable:
- Your company has an increase in sales and/or employees
- You decide to insure more property. This may include a new building, new equipment, more raw materials and/or more inventory.
- Your business requires higher business interruption values
- Changes to your company’s claims history, claims trends in your industry and/or geography
- The claims results, financial performance, strategy and/or profitability of your insurance company change
- Changes to your business autos, drivers and/or locations your commercial vehicles operate in
- Changes to your business leadership team, operations, strategy, policies and/or procedures, sales distribution between Canada, the United States and the rest of the word
The how. It’s all about individual risk pricing…
Changing risk changes insurance cost. If you want or need to change what you are insuring, more often than not, the cost of your insurance will change. Here’s an example of how this might play out for a commercial business:
Let’s say you are a manufacturer who sells $300,000 in products in one calendar year. In the following year, thanks to increased consumer demand, you end up selling $600,000 worth of products. As you grow, your insurance coverage will grow to directly align with your expanded business needs.
The reason your insurance premium will increase is based on individual pricing factors. These factors are often much easier to understand because they are directly related to what exposures and risks you are insuring. These factors are also most often driven by you, the insurance policy holder.
In short, as the risk for your business increases so does the cost for your commercial insurance.
So, is a 2020 insurance increase inevitable?
It depends. There are many reasons why your insurance is increasing. Some reasons are within your control and some aren’t. We specialize in commercial insurance only and our brokers across Canada can help you get the best value and options aligned.
An ALIGNED Insurance broker can help you understand the specific factors impacting the cost of your business insurance. More importantly, they will collaboratively and transparently develop a plan to ensure you get the best insurance at the lowest possible cost.
