For landscapers and nursery owners, commercial property insurance is a vital safety net that protects your business against significant loss. If a fire damages your building, you want peace of mind that your property — owned or rented — and the tools and equipment you rely on are covered. That’s why it can be confusing when your rates suddenly go up without filing a claim. In this article, we’ll cover the factors affecting the commercial property insurance market and some steps you can take to find relief.
A Changing Climate: Increasing Extreme Weather Events
Extreme weather events can inflict serious damage on commercial property. In August 2023, lower Michigan experienced several major storms that battered the region with heavy rain, strong winds and seven tornadoes. Affected communities saw significant — and costly — flooding, downed trees and damage to structures, among other hazards.
Events like these are becoming more common due to the ongoing effects of climate change, hitting the commercial property insurance market with year after year of significant losses. In 2023 alone, natural catastrophes resulted in global insured losses of $123 million, according to a study by Gallagher Re,1 a global reinsurance broker. These weather events lead to more property insurance claims, with significant damage resulting in higher-than-average payouts, causing insurers to increase their rates or, in areas with enhanced climate risk, pull out of the affected region altogether.
For commercial property owners in Michigan, harsh weather hazards are becoming a fact of life. As climate and insurance experts predict natural disasters will continue exacerbating commercial property losses, what options do property owners have to mitigate them? Start by contacting MNLA’s insurance expert to understand your site-specific risks and learn the steps you can take to mitigate them or lower your premium, such as addressing any structural issues or installing weatherization upgrades.
Sticker Shock: Inflation Concerns
Michigan residents are experiencing inflation in nearly all aspects of their lives, including their insurance rates. As discussed earlier, natural disasters can have a devastating impact on commercial property by damaging or ruining important structures. When it comes to putting your business back in order, the check you receive from your insurance company — and any subsequent increase in your premium — following a claim might surprise you.
During the pandemic, material shortages and kinks in the supply chain caused building costs to soar. While these issues have eased somewhat, ongoing labor shortages continue to hike construction costs to higher than pre-pandemic levels. This increases property repair and replacement costs, leading to higher claim payouts and premiums. Keeping your commercial property in good condition and promptly addressing any building concerns can help prevent minor issues from becoming major claims later.
Insurance for Insurers: Reinsurance Market Claims Rise
EAs natural disasters continue to strike devastating losses across large swaths of the country, insurance carriers are turning to reinsurance — essentially insurance for insurance companies — to help protect them against significant losses due to higher-than-average claims. As a result, some reinsurers lowered capacity for catastrophe (CAT) exposures, while others are increasing rates and tightening the terms of these policies to establish coverage restrictions. While this trend might not be immediately apparent to commercial property owners, this expense is often passed down to customers, resulting in higher rates.
Remaining aware of your CAT exposures, such as earthquakes, hurricanes, wildfires and tornadoes, can help you take positive steps to mitigate your risk. For example, using building materials resistant to your geographical risks can help you avoid significant losses.
Inaccurate Property Valuations: Insurance-to-Value (ITV) Troubles
When you first opened your landscape or nursery business, your insurance broker or agent likely conducted a property valuation. Accurate property valuations are essential to policyholders, as they power ITV calculations. ITVs, in turn, help establish your coverage and premiums by approximating the total cost to replace or restore your commercial property.
Without an accurate valuation, your property could become underinsured. In these situations, instead of receiving the full cost to repair or replace damaged items, having an undervalued property would result in you receiving only a fraction of the funds needed to rebuild. This is a costly situation for property holders and could significantly harm your business as you attempt to make up the difference between the repair bill and the amount you received from your insurance.
As inflation causes the price of nearly everything around us to rise, it can spell trouble for accurate insurance evaluations, as these calculations are tied to the latest material and labor expenses. Avoid becoming underinsured due to these rising costs by working diligently with your insurance to confirm your ITV is accurate. Contact insurance expert Ashley Thomas of Gallagher Affinity for a free risk analysis if you’re concerned about your current coverage amounts.
Many factors impact commercial property rates in 2024 and are likely to continue into 2025. To learn more about how you can take advantage of opportunities to save on your insurance, mitigate your risk and protect your commercial property and business, reach out to Thomas at 918.764.1619 or ashley_thomas@ajg.com for a coverage review. You can also learn more about available coverage at gallagheraffinity.com/MNLA.
1Source: Gallagher Re, ajg.com/gallagherre/news-and-insights/2024/january/2023-natural-catastrophe-and-climate-report
The information contained herein is offered as insurance Industry insight and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer legal advice or client specific risk management advice. Any description of insurance coverages is not meant to interpret specific coverages that your company may already have in place or that may be generally available. General insurance descriptions contained herein do not include complete Insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis. Insurance brokerage and related services provided by Arthur J. Gallagher Risk Management Services, LLC (License Nos. 100292093 and/or 0D69293). </ahref="https:>
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