Inflation and commercial insurance: What you need to know

Inflation can have significant impacts on commercial insurance for Québec businesses.

For several years now, the insurance industry had been operating in a “soft market” environment. This means that premiums were on a downward trend and insurers were showing more flexibility in accepting applications. Thanks to favourable market conditions, they had been more lenient.

Unfortunately, the insurance industry is now trending towards a “hard market” environment. As a result, insurance companies are pressured to drastically increase premiums and may even begin to systematically decline coverages that are potentially risky. They may even resort to cancelling certain contracts.

Policyholders therefore need to show resilience in the face of a tougher market. Brokers have to find new markets for their customers, which can often prove to be a challenge. Here are the consequences of inflation on commercial insurance, and some steps you can take to avoid them, as much as possible.

Increased insurance premiums

When the replacement cost of buildings, equipment or goods increases due to inflation, their insured value must be adjusted upwards. This can lead to higher premiums.

If a company is insured against business interruption, inflation increases the potential cost of claims (such as lost revenue or fixed costs that need to remain covered), which in turn increases premiums.

Cost of claims

The cost of repairing or replacing damaged goods increases with inflation, leading to higher claims.

For liability and employee health policies, inflation in the healthcare sector can increase claim costs as well.

Businesses need to ensure that their coverage is adjusted upwards to reflect the true value of their assets, so they don’t wind up being underinsured. This can lead to additional costs.

With rising costs, some businesses, especially SMEs, may reduce their coverage or cancel their policies altogether in order to save money, thus exposing them to significant financial risk in the event of a claim.

• Regularly review insurance policies, adjusting insured amounts to reflect rising costs.
• Compare offers and consult several insurers to find the most advantageous coverage.
• Invest in prevention and risk management to avoid claims. This could prevent you from making a claim that could in turn significantly increase your insurance premiums.
• Avoid making small claims.
• Dont wait until the last minute to renew your policy and avoid letting your coverage lapse.
• Be transparent with your broker, so that he or she has the necessary information to provide adequate coverage.

Inflation puts considerable pressure on commercial insurance, increasing premiums, claim costs and the risk of underinsurance.

Companies need to adapt to this context by proactively managing their insurance policies and investing in risk prevention. By working closely with their brokers and exploring the best options available, they can mitigate the financial impact of inflation while effectively protecting their assets.

These steps are essential for navigating an increasingly complex and unpredictable market, where the impact of inflation on commercial insurance is considerable.

For support in managing your insurance, don’t hesitate to call on your broker. They are there to help you make the best-informed decisions.