It’s no secret that inflation is raising the costs of goods and services. Higher wages and higher interest rates are also having an impact on the cost of doing business. But these factors also raise how much it may cost to rebuild or resume operations after an insurance claim. As a result, your business may be underinsured and not even know it.
A new survey suggests that many business owners may be unprepared for risk exposure. Only 43% of business owners have increased their business insurance policy limits due to inflation and other economic factors. That’s according to a Harris Poll conducted for Selective Insurance in January 2022.
Businesses and individuals are urged to take steps to prevent being underinsured. The first step is to review your insurance policy. Then, work with your insurance agent to ensure that your insurance coverage and limits are adequate.
However, the study also found that 38% of business owners don’t fully understand their insurance coverage. As a result, they don’t know how to assess if they are adequately protected. That’s where your insurance agent comes in. You can schedule a time to discuss your policy with your insurance agent. That can help determine whether you have exposures that need to be addressed.
The Harris Poll also found that nearly 1 in 4 business owners do not have an insurance policy on their business. Insurance coverage is a critical piece of protecting your operations from loss.
In some cases, a Business Owners Policy (BOP) can automatically increase property insurance limits over a policy year. This feature helps protect against inflation-driven increases in construction and other costs.
Review Your Coverage Annually
Even so, it’s best to conduct an annual policy review. Your insurance coverage needs to evolve as your business grows and changes. Talk to your agent about reviewing your policy to help ensure your risks are covered.
Assess Your Property Values
If your property valuations are outdated, they could leave you underinsured. Ensure your property is valued correctly so your commercial property insurance can cover it adequately.
It’s also helpful to make a plan. Knowing your business continuity can allow your organization to continue functioning if something goes wrong. It is an essential part of managing and reducing risk. Sometimes, this can help you qualify for insurance premiums or discounts.
Types of Business Insurance and Inflation
Different types of business insurance may be affected by inflation in different ways. Here are a few key types of insurance and things to keep in mind.
Business Income Insurance
Business Income Coverage keeps income flowing and can help retain employees and customers. Inflation can affect sales and wages. So make sure you review your coverage in light of current inflation rates.
Commercial Property Insurance
Commercial Property Coverage helps with damage to buildings and other physical replacement costs. However, repair and rebuilding costs have risen with inflation, building material shortages, higher wages, and labor shortages.
Commercial Auto Coverage typically covers damage or loss to your business vehicles. However, the commercial auto market has been hit by a surge in repairs, worker shortages, and supply chain disruptions. Auto parts and used cars and trucks have increased in cost.
Homeowners Also Underinsured
A Harris Poll commissioned by the American Property Casualty Insurance Association (APCIA) found that most homeowners have not taken steps to ensure their insurance coverage keeps pace with rising inflation and increased building costs. Being underinsured can cause serious financial problems for homeowners if a disaster strikes.
Underinsurance can also happen when a property is insured for market value instead of the cost to repair or replace the structure, which can often be higher. The survey found that only 30% of insured homeowners have purchased more insurance or increased their coverage limits to compensate.
Additionally, many people have made renovations and remodeled during the pandemic. However, the survey found that only 40% of homeowners have updated their home insurance to account for those changes.
APCIA has urged homeowners to talk with their agent about adding the following key coverage features:
- Replacement cost coverage – pays an amount necessary to rebuild the home with construction materials of like kind and quality and replace your personal belongings without deducting depreciation.
- Automatic inflation guard – automatically adjusts your coverage amount at each renewal time to help keep up with rising costs; however, reviewing coverage limits during periods of extreme inflation remains essential.
- Building code/ordinance coverage – increases coverage to help comply with any new building code or green energy ordinances.
- Extended replacement cost coverage – increases coverage available to rebuild your home when labor and material costs skyrocket after a natural disaster.
- Additional living expense (ALE) coverage – optional higher limits may help cover hotel and food costs if a more extended timeframe is needed to rebuild your home
Farris Insurance Can Help Make Sure You’re Properly Insured
Farris Insurance Agency can help determine if inflation and other economic factors have left you underinsured. We can help you find the best policy for insuring your business, home, or other property.
We serve businesses and people across Northwest Arkansas, including Springdale, Fayetteville, Bentonville, Rogers, Benton County, and Washington County. Contact Farris Insurance at (479) 756-6330 and get a quote today.