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Businesses seeking commercial property insurance are facing multiple challenges in securing adequate cover. The impact of inflation, soaring rebuild costs and the frequency of severe weather events have drawn heavily on claims paid and made insurers more discerning about the risks they are willing to cover.
As a result of this combination of factors some business commercial properties may be underinsured or face difficulties in obtaining the full extent of protection they need.
Inadequate coverage limits can leave businesses financially vulnerable to a loss event but the ability to demonstrate a commitment to risk management and loss prevention may enable more favourable insurance terms and pricing.
Factors driving inadequate coverage limits and underinsurance
Inflation: Inflation has caused a significant increase in property values and other assets, making previously adequate coverage limits insufficient. This is compounded by rising costs of building materials like timber and steel, further impacting rebuild costs.
Insurance market trends: Due to the high frequency of claims for severe weather events, restricted capacity for commercial insurance and reinsurance makes it difficult for businesses to secure adequate limits.
Underestimating recovery time: Indemnity periods in business income policies may be inadequate. Factors like inflation, supply chain issues and labour shortages further extend the restoration time needed.
Underinsurance: Many businesses don't fully understand the risks of underinsurance. This can have significant financial and legal consequences, even leading to business closure in case of a claim exceeding coverage limits.
Insurance affordability and availability: Due to factors like inflation, increased claims, and reduced reinsurance capacity, securing sufficient commercial property insurance has become both more expensive and challenging. Some insurers have significantly reduced their capacity or are only insuring higher layers of property programs, especially in regions prone to natural catastrophes.
Lack of awareness: Commercial property owners need to be aware of their tenants' occupation and business activities. This area alone will drive an insurer acceptance and how they'll price the risk.
As insurers become more selective, some businesses are having to piece together coverage from multiple providers, leading to more complex insurance programs with potentially higher costs and administrative burdens.
At the same time insurers are implementing stricter underwriting standards, demanding more detailed risk information from businesses seeking coverage. This includes a greater emphasis on risk mitigation efforts and up-to-date property valuations.
How businesses can improve their risk profile with insurers
Businesses that adopt robust risk management practices may make themselves more attractive to insurers, enhancing access to coverage and potentially securing favourable terms.
Key elements include:
- proactive risk mitigation: This involves investing in measures to prevent or minimise potential losses, such as implementing robust fire protection systems, adhering to stringent building codes and having scheduled maintenance plans to periodically clean gutters and drains, and check for repairs needed
- regular risk assessments: Investing in risk engineering surveys helps identify vulnerabilities and address them proactively
- transparent risk information: Providing insurers with comprehensive and detailed risk management protocols fosters trust and demonstrates a commitment to risk management.
Collaboration with brokers and risk experts
Working closely with insurance brokers and risk management professionals is crucial in navigating this challenging market. These experts can provide invaluable guidance on:
- identifying coverage gaps: Brokers can help stress-test insurance policies to ensure they adequately cover potential losses under various scenarios
- negotiating with insurers: Brokers leverage their market knowledge and relationships to secure optimum coverage terms for businesses
- exploring alternative risk transfer solutions: For businesses struggling to secure sufficient coverage in the traditional market, brokers can help explore options like higher deductibles or in some cases captives and other risk-sharing mechanisms.
Increased awareness around business risk management
It's crucial to understand the financial and operational risks associated with underinsurance, particularly for small businesses.
Tapping insurance brokers' knowledge to explain policy terms, conditions and exclusions can empower businesses to make informed decisions.
Gallagher brokers work to secure cover on optimal market terms
The factors impacting insurance premiums and market conditions are varied and also depend on each business's risk profile, claims record, approach to risk management and the broker capability, so businesses should be prepared for changes in premiums and other aspects of their insurance renewals year on year.
At Gallagher we work with a large variety of businesses, with unique risks, challenges and circumstances, including many businesses with hard to place risks. As a leader in risk management, we provide expert guidance in meeting insurer expectations through the renewal process, to access cover that achieves confidence in business risk protection solutions.
Let Gallagher be your trusted partner in navigating the evolving insurance landscape and your upcoming renewal, or consider a complimentary Gallagher business insurance risk review.
