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If your business insurance premiums have gone up, you’re not alone. Three in five small businesses and self-employed people had experienced a rise in their premiums in the past year, according to a recent survey by the Federation of Small Businesses (FSB). Of these, over half (52%) saw their insurance premiums increase by 11% or more.
Operating within an already difficult trading environment could make this increase hard to absorb. Tina McKenzie, policy and advocacy chair at the FSB, explains the knock-on effect: “Almost half of small businesses in our research reported that premium increases have had at least one impact on their business.”
What’s more, almost a quarter (24%) of small business owners said that they had reviewed or reduced their spending elsewhere due to these premium increases. One in 10 even reduced their level of overall insurance cover – potentially leaving them exposed if they needed to make a claim.
Wider reasons for premiums going up
Insurance premiums can be affected by global and local factors. Severe weather, the potential for changes in regulation, post-pandemic (and Brexit-related) supply chain issues, the war in Ukraine and inflation are just a few of the wider issues at play.
It won’t be news that the price of goods and services has risen, which means more expensive claims costs for insurers. From costlier building materials and labour to soaring energy prices, there is plenty to affect an insurer’s bottom line. Added to that, the cost of reinsurance – which is insurance for insurers – has increased.
The Covid-19 pandemic has also changed the insurance landscape, with the Association of British Insurers (ABI) predicting pandemic-related business interruption insurance payouts will reach £2 billion. ABI figures also show that insurers’ profits on liability insurance was £38 million in 2020, a significant decrease on £256 million in 2019.
Business interruption insurance claims didn’t always go smoothly, though. “Business interruption insurance turned out not to cover many businesses’ losses during the pandemic, adding to the hardship faced by many small firms,” says McKenzie.
Weather conditions can also affect premiums. A rise in the number of claims after extreme weather means increased costs for insurers. So, when there is a surge in commercial and residential property claims after storms or floods, for example, premiums are likely to rise.
In early 2021, storms Eunice, Dudley and Franklin hit the UK, costing insurers an estimated £500 million in related claims. Added to that, the soaring temperatures of summer 2022 led to increased claims for fire and subsidence (when dry spells lead to parched soil and the ground sinking under a property). For insurer LV, subsidence cases rocketed by 205% between June and July 2022.
Not all business cover is priced equally
The price of some types of business cover may have increased more than others. Also, insurers are tightening up on what they will cover and writing stricter expectations into policies. These include specific rules on property alarms, storage of contents and cyber security measures they expect businesses to take.
Cyber insurance price increases in recent years followed a surge in ransomware attacks, data breaches and resulting claims. Marsh Global Insurance Market Index figures, which look at the global price of commercial insurance renewals, show UK cyber insurance pricing in January to March 2022 more than doubled (102%) compared with the same period in 2021.
The cost of professional indemnity insurance (PII) is another area of concern for some businesses. You don’t need PII by law, but it’s essential for some professions. McKenzie says that specific sectors, such as advisory services and construction, could be particularly affected by premium increases.
“Over a third of small businesses say that they have experienced at least one issue with PII cover, including overly expensive premiums, cited by over one in four,” she comments, “but our [FSB] findings show that those who report purchasing PII because it is a requirement, either set by their clients, regulator or professional body, are almost twice as likely to say that they have experienced overly expensive premiums.”
Why individual premiums increase
Of course, this is just a snapshot of the bigger picture. When it comes to your business, insurers consider a few factors before offering you a price. Your renewal offer might be higher if, for example:
- You’ve made a claim on your policy during the policy year: Insurers consider any past claims when they calculate your premium.
- A promotional discount has ended: Some discounts might end after a year, so factor that in if you don’t plan to shop around at renewal time.
- You’ve changed details on your policy: Your business may change over time, which may lead to hiring more staff, moving location, expanding into new territories or diversifying. With more risk can come higher premiums, and sometimes fees for making those changes if it’s mid-policy term.
But bear in mind that when your policy is up for renewal, it’s always worth comparing quotes for business insurance from a few providers.
“You may benefit from shopping around or using a broker but be sure to always choose a policy that best suits your business’ needs, ” advises Mark Shepherd, assistant director and head of general insurance policy at the ABI.
And if you think you might struggle to pay your premiums at any time, he urges you to take action.
“Speak to your provider if you are concerned about the cost of your cover, as they might be able to help with options to manage this,” he adds.
If you’re finding it hard to renew or buy cover, membership or trade bodies for your profession may also be able to offer support and guidance.
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