Even free of research, anecdotes alone will tell you that insurance costs, like most commercial property related expenses, are on the rise. There are many like Fed Chairman Jerome Powell who suggest that rising insurance costs are directly related to inflation issues. We take a look at this trend of increasing insurance costs and your commercial real estate portfolio.
Why is Property Insurance on the Rise?
According to travelers.com, there are a number of factors that are affecting property insurance costs. The first, of course, centers around the matter of losses or damages because of natural disasters. This proves especially true if your commercial property is located where natural disasters are more likely, such as coastal areas that are more prone to hurricanes and flooding.
However, even deeper inland properties are affected because storms are becoming stronger, more active and more, well, disastrous. This means that commercial property owners are filing more claims and for more extensive damages. Those costs are then returned to the claimants by way of increased insurance rates.
Also, there’s the matter of materials involved when an insurance agent contracts companies for repairs. Fabricated steel and concrete products, to name a few, cost more now than just a few years ago. This, of course, translates into a higher cost for repairs and damage. Again, that will be reflected in future rising rates.
Are you ready for even more upsetting news? There’s a skilled labor shortage in America. Although construction wages and salaries are considerably higher these days, contractors still struggle to populate their crews. This creates unexpected delays and higher costs across the board.
How Can You Mitigate the Effect of Increasing Insurance Costs on Your Commercial Real Estate Portfolio?
According to Tivly.com, there are a few things that business owners can do to scale back on these rising insurance costs. A quick and easy choice is to take a good look at your coverage and consider cutting any unnecessary options or packages. There is no benefit in being overinsured and in today’s insurance market, it might behoove you to make sure that you have only what you truly need.
Also, talk to your insurance provider about possible bundling. Package deals are a popular choice in most every industry and that’s especially true in the insurance market. This could be a very effective way to reduce insurance costs.
There’s also the somewhat unpopular choice of raising your premium. While some might shy away from this option, the overall point is that the premium only comes into play when a file is claimed. If you and your business are living well in a largely claim-free world then that can save you money both in the short and long term.
Also, fall back on the old axiom, “It costs nothing to ask” and simply ask for a discount or lower rate. If you are an established customer this might turn into the quick and easy solution you’re looking for.
You can also work with a commercial property insurance broker to help find you the best rates often keeping you nimble to switch plans annually.
Ultimately, insurance is an unavoidable cost for commercial real estate professionals and rising insurance costs have a direct effect on your commercial real estate portfolio. Fortunately, you should be able to pass these costs along to your tenants and proper commercial lease accounting software can be a great tool for you to ensure profitability in operations amidst rising hard costs. Schedule a free, no-obligation demo or contact us today to learn more.
