6 Forces Driving Commercial Property Insurance Costs

Hurricanes, floods, wildfires, tornadoes, winter storms. The frequency and severity of major catastrophes continue to stress the industry. In the last four years, these events have caused annual insured losses of more that $100 billion globally.¹ In 2023, total insured losses globally were an overwhelming $118 billion.² Severe convective storms (SCS) represented 58% of the losses globally, and in the U.S., six of the 10 most expensive events were SCS events.³

Although reinsurance capacity improved in 2023 and into 2024, the cost of available reinsurance capacity remains high. The continued impact of catastrophic events is a major factor driving up costs, along with the increasing cost of capital, financial market volatility and inflation. This is an expense carriers need to pass along to customers.

After years of increased material and labor costs, insured property replacement values continue to lag.⁴ Just 43% of business owners say they have increased their policy limits to accurately reflect what it would take to replace insured property now.⁵ Customers must have accurate valuations for their assets so they don’t come up short after a loss, and premiums will reflect those high values.

Led by a 65% increase in fabricated structural steel and a 37% increase in the price of concrete products, nonresidential construction costs remain high with a 37% increase over the past four years.⁶ Similarly, machinery and equipment costs have increased 22% over the same period. Many contractors continue to struggle with a supply chain that, while better, is still far from pre-pandemic levels.

Nearly half of construction costs are wages and salaries, and wages have increased 22% over the past four years.⁷ Even with the higher wages, 77% of contractors are struggling to find skilled labor.⁸ Higher rebuilding costs and longer delays may trigger an increase in business interruption losses.

For years, escalating loss trends have outpaced rate increases, primarily because of the costs of catastrophes, severe weather and large fires. Expect carriers to raise rates again this year to close the gap.⁹