Why Are My Business Property Insurance Rates Rising?

Catastrophic events have a ripple effect on local and national insurance markets, and the U.S. as a whole has been no stranger to costly disasters in recent years and over the last two decades. When an event brings unprecedented damage to an area, businesses in the area will definitely see increases in property insurance rates. If your area experiences significant flooding, tornadoes, hailstorms or other costly catastrophes, it will have an impact on the local insurance market the following year and likely for years to come until insurance companies and the market can stabilize.BusinessProperty

What’s more, businesses outside of the catastrophe area can also see premium increases, only perhaps not as large.

According to the Insurance Information Institute, a catastrophe is a natural or man-made disaster that is unusually severe. An event is designated as a catastrophe by the property insurance industry when claims are expected to reach $25 million and more than a certain number of policyholders and insurance companies are affected.

Catastrophes can be natural disasters like wildfires, tornadoes, winter storms, hailstorms, hurricanes and others, as well as man-made events like the attacks on the World Trade Center on September 11, 2001.

The Insurance Information Institute reports that from 1993 – 2012, hurricanes and tropical storms made up 40.4 percent of total catastrophic losses, followed by tornadoes (36 percent), winter storms (7.1. percent), terrorism (6.3 percent), earthquakes and other geologic events (4.7 percent), wind/hail/flood (3.8 percent) and fire (1.7 percent). Civil disorders, water damage and utility service disruption combined represented less than 1 percent of total catastrophic losses.

Recent catastrophic events in the U.S. include the Washington State Mudslide, 2014 winter storms, and deadly 2013 tornadoes. Hurricane Katrina remains the costliest catastrophe in U.S. history, with estimated insured property losses of nearly $50 billion (adjusted for inflation). Following Katrina are the September 11th attacks in 2001, Hurricane Andrew in 1992, Hurricane Sandy in 2012, and the Northridge, California earthquake in 1994.

The price of an insurance policy reflects the costs of paying claims covered by that policy, as well as an insurance company’s costs for things like reinsurance (insurance that insurance companies buy to protect their assets). Reinsurance costs and direct claims costs are lower where the risk is low; premiums reflect the normal level of a certain type of claims in a geographic area (e.g., if your risk for windstorms is low, your premiums will reflect that). But when there is an extraordinary event, or a series of smaller but also extraordinary events, insurance companies often take measures to spread the risk around.

Past events are factored into projections for future events, and insurance premiums reflect those projections. Insurance companies re-evaluate their exposures regularly, and after one big event or a slew of smaller ones, higher property insurance rates for individuals and businesses are often to be expected. The reassessment of exposures and the higher premiums that result can be broad or more targeted; premiums are likely to be much higher in areas where a catastrophe occurred, and somewhat higher across the country to help absorb the costs and be ready for the next event.

Have you experienced an uptick in your property insurance rates? Do you think that recent catastrophes are to blame? What can we do to help you better understand your business insurance rates, and how events nationwide can impact markets everywhere?

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