Why are US commercial insurance rates continuing to climb?

New report identifies three key drivers

Why are US commercial insurance rates continuing to climb?

Insurance News

By Lyle Adriano

A new report from the American Property Casualty Insurance Association (APCIA) has looked into the impact of inflationary pressures on commercial lines insurance in the US and identified three main drivers of commercial insurance rate increases.

“Insurers and agents continue to look for ways to reduce costs while still meeting all obligations to policyholders, but as claims and other costs have increased dramatically insurers are under pressure to raise rates on a variety of insurance policies typically utilized by small businesses,” commented APCIA senior vice president of policy, research and international Robert Gordon.

Gordon pointed out that small- and medium-sized businesses are expected to see an increase in their insurance costs when they buy or renew a policy – even if they have not made a claim in the preceding year – all thanks to certain economic pressures.

APCIA cited a recent survey from the Council of Insurance Agents and Brokers (CIAB), which found that in Q4 2021, medium-sized businesses saw an average insurance premium increase of 10.6%, while small businesses experienced an average 6.3% increase.

According to APCIA, there are three main drivers of commercial insurance cost increases. These are:


Spikes in inflation and other developments over the past year have considerably increased the payouts insurers have made. APCIA noted that in March 2022, the consumer price index (CPI) jumped 8.5% from a year earlier, which the association noted is the fastest 12-month surge since the early 1980s. APCIA also warned that insurance claims inflation has been rising faster than CPI, outpacing premium increases.

Legal system abuse

Legal system abuse is also making commercial insurance costly, APCIA said. When lawsuits against insured businesses become more likely to lead to large verdicts, the cost of the insurance policy that covers those verdicts may rise, as well. The P&C industry incurred losses for general liability have skyrocketed more than 57% since 2017.


Ransom payments in recent times have frequently topped $1 million, and the resulting costs for business interruption and/or data exfiltration also increased claim payouts. APCIA said that the massive growth in ransomware attacks increased 2020 loss ratios for standalone cyber policies by over 50%, and the corresponding combined ratio was estimated at over 100%. APCIA has warned that this trend is expected to have continued in 2021.

On the subject of combined ratios, APCIA also reported that commercial insurers’ overall combined ratios were also dangerously high last year. After three years of combined ratios sitting around 99%, preliminary estimates for 2021 have alarmingly pegged the P&C industry’s commercial lines combined ratio at almost 101%, which meant insurers paid more in claims and expenses than they earned through premiums.

“US P&C insurers faced an $11.3 billion net underwriting loss in third quarter 2021. These trends are not sustainable,” noted Gordon.

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