Why are business insurance premiums increasing?

If it’s time to renew your business insurance, you might have noticed an unwelcome rise in the cost of your premiums. In fact, you might have noticed a price hike in all kinds of insurance in recent years. From car insurance to home insurance and beyond. 

If you’re wondering why, you’re not alone. We're here to lend a helping hand. Below, we break down the key reasons for rising business insurance premiums, as well as some ways you could save when you renew.

Why are my business insurance premiums going up?

It’s not just your business.

Though the Global Insurance Market Index says UK overall insurance rates fell slightly in the first three months of 2024, the cost of business insurance has continued to rise.

Your premiums may have increased for a few reasons:

Increased costs for insurers

Like you, insurers are running a business. Rising inflation means goods and services have become more expensive. Insurance companies are facing increased wage and energy costs along with higher business rates. So, to avoid heavy losses, they put up prices. This means we all end up paying more. 

Although that doesn’t sound very fair, insurers are also paying more for their insurance. The price of reinsurance – basically, insurers' insurance – has gone up, too. So your insurer has to put up its prices or risk going bust. 

Global issues

It’s not just inflation that’s pushing up prices. Global instability is making materials more expensive and difficult to obtain - and this affects everyone. Even as the economy starts to settle down, insurers have to pay out more money to satisfy claims. 

Insurers are also facing a higher number of claims. More extreme weather and the growth of cyberattacks mean insurers are paying more than in the past.

Your circumstances have changed

Your premiums are based on your business and its activities. If you’ve grown or changed in a way that your insurer thinks is more risky, they might charge you more. And, if you’ve changed your level of business insurance cover, that could drive up the price too.

If you’ve had to claim on your insurance since you last renewed, you won’t usually see the difference in price straight away. It’s only when you come to renew that your insurer might raise your premiums. Similarly, if you’ve been benefiting from an introductory discount period, you'll probably see higher premiums when you renew. This is because these offers usually only cover the first year. 

Insurance premium tax (IPT)

The government also adds a tax to most insurance policies. Between 2015 and 2024, the rate has doubled from 6% to 12%, meaning IPT now brings the Treasury around £8 billion per year. That’s more than the taxes on beer and spirits combined. This cost isn’t paid entirely by your insurer – you have to pay towards it too. So, the more expensive your policy is, the more you'll to pay.

What else causes business insurance costs to increase?

The cause of rising business insurance premiums can vary from business to business. This is because your business insurance policy is unique to your operation and designed to meet your needs.

That being said, the price you pay is often based on the following factors:

• Your sector: Higher-risk industries are usually expected to pay more. This is because insurers know they’re more likely to make a claim. For example, your public liability cover could cost more if you’re running a paintball arena than if you were running a café. 

• Your cover level: If you have more policies or you’re looking to get a higher payout if you need to claim, you’ll likely have to pay a higher premium. 

• Your agreed excess: The amount you’re willing to pay towards a claim can change the amount your insurer charges. A higher excess suggests lower risk on their part, and usually results in a cheaper premium.

• Your claims history: A record of claiming on your insurance can lead to insurers seeing your business as high risk. This can lead to higher premium rates.

• Your business growth: Insurers can consider the growth of your business to work out how large or likely a claim might be. The more employees you have, and the more you might lose if something goes wrong, the more you can expect to pay.

Want to know more? We’ve prepared a full guide to the factors that impact the business insurance prices.

Should I notify my provider of business changes?

Yes. Even if it increases your premiums, you have to tell your insurer about things like:

• Changes in business activity

• Turnover or stock-level updates

• New employees or trainees

• New contracts of work

• Other policies your business might hold

If you don’t keep them up to date, you risk invalidating your policy. And if you’re not covered, a disaster could cost much more than any premium increase.

How can I reduce the cost of business insurance?

There's a few ways you might be able to reduce the cost of your business insurance.

Business insurance is often a vital expense. In some cases, you simply can’t do without it. Every business with employees has to hold employers’ liability insurance by law. Depending on what you do, it may also be sensible to carry public liability insurance, professional indemnity insurance and more. 

So, if you’re thinking of cutting back on policies or reducing your level of cover, be very careful. If you under insure your business, you might leave yourself open to future losses. It may be a better idea to try to convince insurers to offer you a better deal.

You may get a better deal if you:

• Show your worth: Demonstrate to your insurer that your business is well run, and they may charge you less. This means giving them things like risk assessments, audits, timely accounts, and evidence of qualifications and accreditations. If you create a business continuity plan, you can also show that you’re ready to deal with disaster if it happens.

• Stay ahead of the game: If you can prove that you’re making the most of new technology and keeping your training plans up to date, insurers could consider your workplace safer and offer you a lower rate.

• Take a comprehensive package: Buying insurance piece by piece might cost you more than a package deal. Check to see if your insurer can combine any individual policies into a bundle with a lower premium.

• Try a different insurer: Before you renew, always compare business insurance to see if you can get a better price for the same package from another insurer. If another company offers you the same cover for less, you’ve saved money for very little effort. Don’t forget to also check with your trade organisation, if you have one. Sometimes, they can help you access cheaper policies.

• Use a broker: Sometimes using an insurance broker can help you get better deals from insurers, particularly if they know your industry well.