Why Are Your Business Insurance Premiums So High?
It’s frustrating to see your insurance premiums rising at each renewal. Many business owners wonder why it’s happening and what they can do to control the costs of protecting their companies and employees.
While workers’ compensation premiums have been declining for years for those with good claims records, overall commercial insurance costs have continued to rise. Small and midsize businesses are especially feeling the pinch as their premium increases outpace those of larger companies.
Here, we’ll look at what is behind the cost trends and offer some ways to minimize your insurance premiums.
Commercial property insurance
The cost of insuring commercial buildings and their contents is still rising, but at a much slower rate than in recent years. However, commercial auto insurance premiums are still rising at rates far above the Consumer Price Index (CPI). In fact, price hikes are more than three times CPI, according to the Council of Insurance Agents & Brokers. What’s driving these rates?
Business property insurance rates are influenced by location, past claims, the value of your company’s building and equipment, crime and weather in your area, and what industry you are in. For businesses in disaster-prone or high-crime areas, rates are increasing because of the elevated risk of insurance claims. Both high-frequency and high-severity trends in a locale affect rates for all businesses in that area.
These trends can lead to rate increases across the nation as insurance companies try to keep revenue ahead of payouts. Additionally, because of wildfire, wind and storm losses, some regions are experiencing reduced insurance availability, which drives prices up.
For those with company vehicles, commercial auto rates reflect both the vehicle and the liability side of coverage. Though the cost of repairing commercial vehicles has declined over the past several months, the number and severity of accidents are increasing. This means a higher price tag for all commercial auto policies, especially for companies with at-fault accident claims.
Commercial liability insurance
Almost all types of commercial liability insurance are rising in price, some much more than others.
Umbrella liability and commercial auto liability are outliers, with premium increases in or near double digits nationwide. This is almost wholly due to:
- The frequency of small liability claims that cost little by themselves but a lot all together
- The severity of high-value verdicts, especially in commercial auto accidents and personal injury lawsuits that involve permanent disability or a fatality
As a result of the escalating risk of claims and high-value verdicts, several insurance companies have withdrawn from the umbrella market. Less competition means higher costs for the coverage left available.
Other liability coverages, such as pollution, environmental, and contractors pollution liability, vary considerably in their premium trends based on the type, location, and scope of work. But overall, these lines of insurance are rising in cost due to higher expenses associated with investigating and defending against claims.
In professional liability insurance, certain segments are seeing substantial increases due to rising claim severity or frequency. Affected segments include human services, hospitals, insurance agents and realtors. But overall, professional liability costs are rising moderately. There are still plenty of insurers willing to accept these risks.
In all these segments, insurers are facing escalating legal costs due to the growing frequency of lawsuits backed by litigation finance companies. These are investor groups that sponsor lawsuits on the bet that the yield from a settlement or verdict will be profitable. Plaintiff attorneys can file more lawsuits because more people can afford to sue, relying on the deep pockets of the litigation financiers. These lawsuits drive up insurer costs and, therefore, premiums across the board.
Staged and inflated lawsuits are also increasing. Exposing and defending against these claims requires substantial insurer resources, and those costs are reflected in premium increases for everyone.
The only segments seeing notable price declines are cyber liability, directors and officers (D&O) liability and employment practices liability (EPL). Cyber risks and incident prevention are better understood now than in the past. Insurance companies have been able to make coverage contingent on good cybersecurity, which has helped control losses considerably. In D&O and EPL insurance, prices have been declining because capacity is strong, meaning many insurers are willing to place these coverages. That said, these price declines are expected to slow or vanish over the next year as insurers’ appetite for D&O and EPL exposure dwindles in response to increased claims and lawsuits.
General liability insurance is in good shape when it comes to pricing. While its price is still rising more than CPI, the rate of increase has been declining in 2025. That’s likely due to a strong number of competing insurers, as well as adequate premiums to cover expected claims.
Notable with all liability coverages is insurers’ demand that policyholders both:
- Demonstrate good risk management
- Take on higher amounts of potential loss
Don’t be surprised if insurers ask you to increase your retentions or set higher attachment points before your umbrella coverage kicks in. (Risk retention is when you accept financial responsibility for more of the risk, instead of transferring it to your insurer. An attachment point is the threshold of claims costs your business must reach before your insurance coverage kicks in.) If you have prior claims or are in an industry with higher risks, you may have to seek coverage from multiple insurers to meet your total insurance needs. This strategy is known as creating a “tower” of insurance.
Ways to reduce business insurance premiums
The best ways to reduce your cost of insurance include:
- Demonstrating excellent risk management
- Having no or few claims
- Showing that you have course-corrected after a claim to reduce further risk
- Increasing your risk retention
For those who qualify, premium financing can benefit your balance sheet. It allows you to borrow money to pay for insurance premiums instead of laying out a lump sum up front. With premium financing, you can level out your payments throughout the year, which may benefit you if your business experiences cash flow highs and lows.
Also key to keeping insurance affordable are keeping good records and being able to present a convincing narrative about your company’s stability and risk management. You also should work with an insurance broker who has access to multiple insurance companies, the excess and surplus lines market, and managing general agents. Such access can broaden your choices so you can find the most economical options for protection.