As a business owner, dealing with rising costs may be on your agenda. Businesses of all sizes are feeling the impact of inflation. Along with rising operating expenses, your business insurance costs may also increase. So, why is this happening and how can you manage the premium?
Business insurance premiums can go up for various reasons, including inflation, market conditions, changes in coverage, industry-specific risks, and other factors. Understanding how these factors affect your premium may help you manage the costs.
What’s the impact of inflation on my business insurance?
From business investment to consumer spending, inflation significantly affects our economy. It causes prices to go up, so we get less for what we pay for. This leads to a rise in the cost of living as people need more money to afford the same level of goods and services.
Inflation can affect your business insurance premium in a couple of ways:
Replacement costs
The cost of replacing assets, such as buildings and equipment, rises with inflation. To cover potential losses, insurers have to keep up with these costs which leads to higher premiums.
Liability expenses
Medical and legal costs also rise with inflation. Insurers need to provide public liability insurance cover that meets these increased costs, which means premiums go up.
If you need to make a claim, you trust your insurer to cover your sum insured. That’s why insurers consider inflation when calculating your premium. To reduce your risk of underinsurance, your insurer may adjust your sum insured automatically to reflect rising costs.
However, it's not just inflation that affects insurance costs. Other market conditions and factors affecting similar types of business to your own and factors unique to your business can also influence your premium.
Which factors contribute towards rising business insurance costs
Here are some of the common factors that can contribute towards business insurance premiums:
Reinsurance costs
Did you know that insurers also have to pay for insurance? Specialist insurers help cover the cost of claims for major disasters, such as bushfires. This is ‘reinsurance’ and it works in the same way as your insurance. Just as your premium will increase after many claims, your insurer’s will too.
Market conditions
Market conditions can also affect business premiums. These could include changes in the economy, such as an economic downturn. Other examples include new laws, and natural events like floods, bushfires, and hail.
Location, location, location
Insurers consider location-based risks when calculating business insurance premiums. If crime rates are high in your area, or it's prone to natural disasters, such as bushfires or floods, this can affect your premium.
Changes in coverage
Did you expand your business or buy a new vehicle or other assets? If so, you might want to
upgrade your policy with some additional cover. If you choose more comprehensive coverage, your premium is likely to increase.
Claims history and industry-specific risks
Your claims history affects your level of risk, which may increase your premium. Other factors include industry-specific risks and significant changes to your business. These changes could include expanding into new markets or offering new products.
How to manage rising business insurance costs
The good news is there are ways to manage rising insurance costs. These practical tips may help you get started:
Review your insurance needs
Long-term insurance planning is especially important during a changing risk environment, or if you’re expanding your business. Review your business insurance regularly and adjust your policy to make sure you have appropriate coverage.
Consider paying monthly
Many insurers offer flexible payment plans, so it’s worth checking your options when you buy your policy. With Allianz, you can pay by the month at no extra cost.1 This may help you manage your cash flow while maintaining continuous coverage for your business.
Check your sum insured
The costs to replace your business assets may increase because of inflation, so it’s important to review your sum insured. Check your policy to make sure your sum insured accurately reflects current costs and values.
Stay informed about insurance trends
Keep up to date on industry trends and regulatory changes that may impact your business insurance costs. This may help you to anticipate and adapt your insurance accordingly. Our
business insurance articles offer useful tips and insights to help you with your decision making.
Conduct regular risk management
Implementing a risk management strategy may help you minimise potential risks to your business. For example, improving safety measures and security systems, or offering training programs.
Be prepared for the unexpected
We can’t predict the unexpected, but we can prepare for some insured events, such as storms. Being prepared may help you maintain up-to-date insurance coverage. Visit our extreme weather support page for useful information that may help you prepare before, during, and after an extreme weather event.
Your business is your livelihood, and business insurance cover is there to help you financially if something unexpected happens. Business insurance costs may rise, along with other costs, but it’s important to make sure you have appropriate cover for your needs.
We’re here to help. Reach out to our team of Australian-based Business Insurance specialists if you’d like to discuss your policy.
