Has Commercial Building Insurance Become More Expensive?

According to CIAB, the increase in commercial insurance premiums ticked in at around 20.4% in the first quarter of 2023, the highest since 2021. Apart from the increased premiums, the report emphasizes that property owners are experiencing several new changes because of a variety of factors at play. This includes rising deductibles, changing policy terms, and more.

Experts speculate that if the states do not experience a major damaging disaster in the coming years, the price may reach an equilibrium, but this appears to be overly hopeful.  The recent wildfire in Hawaii has already begun to wreak havoc and showing it’s impact on the market. 

According to a report, this wildfire could cost more than a billion dollars when it comes to analyzing the incurred costs. These are trying times, and the commercial building insurance industry has been severely hit. However, given that these disasters are at an all-time high, commercial building insurance has become more than necessary.

Factors Impacting Commercial Building Insurance Premiums

Catastrophic Events

As previously stated, catastrophic events are at an all-time high. Hurricanes, wildfires, floods, cyclones, and other severe weather events occur in the United States on a regular basis. As outlined by Forbes, these disasters have increased over the years. Billion-dollar losses have been incurred for approximately 99 disasters.

Climate catastrophes cause an average annual loss of $4.7 billion, which has driven a sharp increase in the cost of commercial property insurance. Many insurance providers have highlighted and recorded severe losses because of this factor, and as a result, they have had to raise the commercial property insurance or, in the worst-case scenario, drop some people from the list. This was highlighted in one of the reports, where an insurance holder expressed her concern about her coverage being dropped.

Location and Market

Locations are important in determining insurance premium rates. Among the worst-hit states in catastrophic events, states like Texas, Missouri, and Illinois top the list. In fact, people are relocating to states where commercial building insurance premiums are less likely to rise because of their location and demand. Vermont and Alaska are examples of such states.

All factors that contribute to an increase in commercial building insurance prices are interconnected. For instance, location is related to the market scenario in the area, the type of wage inflation the state is experiencing, and the material cost surge when it comes to repair work and building the entire structure. 

Inflation and Price Parity

Economic changes are one of the primary reasons for commercial building insurance prices to rise rapidly. People are underinsured, which endangers the entire property owner community because being underinsured is equivalent to not being insured at all. This is due to the high cost of repair work and locating a credible craftsman to assist in rebuilding or repairing the structure.

An interesting report from CNBC highlights how prices for floor coverings (7.2% year on year), window coverings (16.2% year on year), furniture (17% year on year), appliances (8.5% year on year), and other similar items have risen dramatically from 2021. To cover such high prices, it is obvious that the prices of commercial property insurance have been increasing, causing property owners to have little to no zeal to invest in remodeling or refurbishing if it is not an immediate need.

Labor and Material Costs

According to a report, running a home has become a difficult task because the cost of tools and hardware needed around the house has increased by 23% since 2021. 

Plus, there’s a demand-supply problem on the labor end. The retirement rate has been higher than the joining rate. Because of this disparity, skilled job takers such as electricians are in huge shortage, disrupting the demand and supply. All of these factors add up to an easy conclusion —labor is scarce, resulting in longer project completion times and price increases.

The price of constructing a home, undertaking reconstruction, or performing renovations rises sharply as a result of such factors. This further contributes to commercial building insurance becoming expensive.

Rising Property Demand

Because of high mortgage rates, potential buyers have been hesitant to purchase a home in the United States for a long time. However, that might be changing.

Besides, following the COVID-19 pandemic, the workforce is gradually returning to the workplace. This means that the market for rental properties will see an increase. When this factor is combined with the other factors mentioned above, it is clear that the market will see increased demand for end-to-end building protection. Liability, litigation, business interruption, and other factors all contribute to this price increase in commercial real estate.

Commercial property insurance is an important segment for insurance providers and holders for several reasons. However, getting the correct valuation done is critical to avoid being underinsured and facing financial hardship. Gonzalez Insurance can assist you in conducting a property analysis to accurately determine your insurance needs. Contact us for more information on your commercial property needs and requirements.