Let’s say there is a storm, that causes water damage to a business, shutting it down for an extended period of time. This leads to costs related to the building, business property and loss of income. First, there are the material costs for the repair, and the cost of contractors to come in and repair the damage. Both material costs and labor rates are higher than in prior years. This, coupled with delays in getting materials, can lead to an increased business income loss if the business' operations are suspended during this time.

On top of business income, inflation has impacted replacement costs for building and business property. Depending on the length of the repair, the business may even need a temporary location to keep running, and with rents higher than ever, this will add to the overall cost of the claim. All of these market dynamics come together and often result in a need for higher coverage because the limits the business previously had for their property coverage may not be enough with everything factored in. Insurance carriers across the industry are adjusting their rates for the same reasons, which is why inflation is resulting in increases on property premiums.

Ongoing efforts to improve technology and auto design have made vehicles more expensive to repair when damaged. So, even if there isn’t a total loss, when a vehicle is being repaired the costs are higher—up to 11%. In addition, significant delays in some parts have also caused repairs to take longer, meaning that customers could have added costs for rentals.

Medical costs continue to increase contributing to the increased cost of claims. Beyond that, the number of accidents have been on the rise in recent years. The accident rates have returned to pre-COVID numbers, yet the severity has been worse. All these factors lead to rate increases that are impacting commercial auto across the industry.

In recent years there has been an increase in litigation and attorney involvement in liability related cases. For example, if someone slips and falls on premises, there is an increased likelihood the claimant will not settle without an attorney. With this comes increased costs and ultimately has driven up claims costs across the industry resulting in higher rates. So, even if a business doesn't have a claim, premiums may increase to account for the increased risk of litigation and costs associated.

Labor and material trends impacting the construction industry have combined with the social inflation and nuclear verdicts trends in litigation to create a perfect storm for A&E rates.

The construction industry is facing shortages of skilled labor, resulting in less qualified or inexperienced new hires on the job. Inexperienced workers may lack the necessary skills to perform tasks accurately, resulting in poor workmanship, subpar quality, and costly rework. This can result in dissatisfied clients alleging work mistakes, oversights or missed deadlines. Additionally, increasing material expenses can lead to project costs that go beyond project terms agreed upon in the contract, resulting in litigation. 

When it comes to litigation, the costs of managing a claim have increased substantially in recent years. Defense attorney and expert witness fees, as well as arbitration and mediation costs, are on the rise. Additionally, juries have become more sympathetic towards plaintiffs, leading to larger and more frequent jury awards, increasing the risk of exceptionally large jury awards or settlements when cases go to trial. At trial, plaintiff attorneys may aim to evoke fear and empathy in jurors by presenting evidence that highlights the potential consequences to the community that could result if the defendant's actions go unchecked. 

Insurance carriers across the industry are adjusting their rates for these reasons, which has an impact on professional liability premiums.