Steep Insurance Costs Pressuring Small Businesses

Small businesses are grappling with steep increases in insurance costs this year, forcing them to make tough decisions to manage their expenses.

Why it matters: Rising insurance costs, particularly for health coverage, are putting significant financial pressure on small businesses, prompting them to reassess their operational strategies and seek innovative solutions to cut costs.

The details:

• Nearly half of small business owners reported health insurance cost increases of 10% or more this year, with some facing hikes of 25% or higher.
• Over 30% of small businesses saw increases of 10% or more for commercial auto, liability, or property and casualty coverage.
• Employee healthcare insurance now represents about 12% of total expenses for businesses with less than $600,000 in annual revenues, compared to 7% for companies with annual proceeds exceeding $2.4 million.

Small businesses are particularly squeezed between rising costs of supplies and services and the financial pressure of not wanting to pass these higher costs along to already financially stretched customers.

How small businesses are responding:

• Some businesses are raising prices, while others are adopting stricter screening for job candidates, increasing workplace safety training, and considering changes to employee health care coverage.
• Equipment maintenance companies have tightened their screening of driving histories of traveling repair technician job applicants to reduce auto coverage costs.
• Some entrepreneurs have raised deductibles, limited health coverage to employees rather than making it available to their families, and delayed filling non-essential job openings.

Experts suggest that entrepreneurs can systematically shop for business insurance needs, bundle coverage, hire consultants to find less expensive options, and invest in disaster prevention measures to reduce the impact of rising insurance costs.

The bigger picture: Small business owners are advocating for policies that strengthen the “care economy,” such as extending subsidies that help keep Affordable Care Act insurance premiums low for working families. They argue that affordable healthcare is crucial for retaining good workers and competing with larger corporations.

What’s next: As insurance costs continue to rise, small businesses will need to adapt and find innovative ways to manage their expenses while maintaining the health and well-being of their employees. The debate over healthcare affordability and its impact on small businesses is likely to remain a key issue in the coming years.

Full story

Small businesses are facing steep increases in insurance costs this year. This is forcing them to make difficult decisions on how they run their operations. Some businesses are raising prices.

Others are adopting stricter screening for job candidates. They are also increasing workplace safety training. Some are considering changes to employee health care coverage.

All of these efforts are aimed at preventing soaring premiums from rising even higher. Rising health insurance costs pose the greatest challenge for small businesses. Many are also reporting double-digit increases in other common insurance products.

Roughly half of small business owners said health insurance costs increased by 10% or more this year. This is according to a survey of about 800 entrepreneurs conducted in June. Nearly one in 10 reported increases of 25% or higher.

Over 30% of small business owners said they had seen increases of 10% or more for other types of insurance. This includes commercial auto, liability, or property and casualty coverage. The survey was conducted by Vistage Worldwide, a business coaching and peer advisory firm.

These rising costs are placing significant pressure on small businesses. It is forcing many to reassess their operational strategies. They are seeking innovative solutions to manage their expenses.

Inflation has hit many companies as hard as it has consumers. Smaller businesses are especially squeezed between rising costs of supplies and services. They also face the financial pressure of not wanting to pass these higher costs along to already financially stretched customers.

However, the heaviest increases that many modest-sized enterprises are battling are for insurance policies needed to safely operate. A report by the Wall Street Journal on Sunday highlighted the issue. It showed that many small businesses are seeing spiking insurance costs.

They are being forced to improvise cost-cutting measures to afford their coverage. Nearly 50 percent of business founders surveyed stated they had incurred hikes of between 10 and over 25 percent this year alone. This is significantly above the estimated 6.5 percent increases that sector experts had originally forecast for 2024.

The price jumps have driven up the 2023 average cost per worker even higher. Employee healthcare insurance now represents about 12 percent of total expenses for businesses with less than $600,000 in annual revenues. This is compared to 7 percent for companies with annual proceeds exceeding $2.4 million.

Higher labor costs and heavy demand for new and expensive diabetes and obesity drugs have helped drive medical coverage prices higher and faster. Other necessary and required types of insurance that enterprises need have also been getting pricier. This includes liability coverage, which about a third of poll respondents said was 10 percent to more than 25 percent more expensive this year.

Property and casualty, commercial auto, and worker compensation insurance have also seen notable price increases.

small businesses strained by insurance hikes

Given current trends, insurance for cyberattacks has become more important and expensive.

Disaster protection from more frequent extreme weather events has also become costlier. So how are smaller companies dealing with insurance prices surging far faster than even broader inflation? Many have said passing along some costs to customers is impossible to avoid.

However, they are also using a mix of responses to offset their rising coverage costs. For example, equipment maintenance companies have tightened their screening of driving histories of traveling repair technician job applicants. This weeds out people with iffier records that could send their auto coverage costs up.

Additional workplace safety training and employee awareness sessions are another cost-cutting measure. These ward off problems before they happen. When those efforts don’t suffice, some entrepreneurs have raised deductibles.

They have limited health coverage to employees rather than making it available to their families. In some cases, they have waited to fill job openings that aren’t essential to operations, delaying additional payroll expenses tied to them. Online comparison and switching service Uswitch suggests that entrepreneurs can do more to reduce some of the worst effects of rising insurance costs.

They advise systematically shopping business insurance needs to a full range of service providers every year. Business owners should try bundling several, or if possible, all different forms of coverage, as packaged policies can often wind up being cheaper. Hiring a consultant or broker to audit current insurance policies and costs and find less expensive options is also recommended, with the consultant’s payment taken as a percentage of the total savings.

For businesses at risk due to increasingly frequent extreme weather events, investing in disaster prevention measures can be beneficial. “Investing in measures like flood protection will minimize the need to make property insurance claims while improving your business continuity,” a recent Uswitch article noted. By employing various strategies and seeking better deals, small businesses can navigate through the challenging landscape of rising insurance costs.

Main Street Alliance members know the Affordable Care Act keeps premium prices low so that they don’t lose good workers to corporate competitors. Richard Trent, executive director for Main Street Alliance, oversees a group dedicated to giving a larger voice to entrepreneurs with fewer than 50 employees. This group is often drowned out by big business lobbyists who oppose pro-employee policies such as paid family leave, a higher minimum wage, access to quality childcare, and affordable healthcare.

Each of these factors can play a role in the loss of good workers who either have to take jobs with large companies that can afford better benefits or leave the workforce entirely. “I feel like we’re really just starting to connect the dots between what a strong ‘care economy’ means for the sustainability of small businesses,” Trent said. “The fact of the matter is that there’s a big showdown looming, especially around affordable health care for small business owners and American citizens.”

Trent specifically touted the importance of extending subsidies that help keep Affordable Care Act insurance premiums low for working families.

“They were re-upped during the pandemic and have been keeping premiums low for American citizens for a while now,” Trent said. “They’re slated to expire next year, and it’s going to be a part of this larger tax debate between Democrats and Republicans.”

While it’s apparent that premium supports have allowed lower-income working families to afford health insurance, they’ve also helped middle-class families who might decide to go without healthcare coverage if it’s not offered on the job. “Just to put things in perspective, if those premium tax credits expire, a 60-year-old couple making around $80,000 a year can expect to pay $17,500 more in health care costs annually,” Trent said.

“That’s not me misspeaking. It’s literally $17,500 on the line for working-class families, which is unacceptable. And a lot of our members know that when you have to incur those sorts of expenses, it can totally throw your business operations out of whack.”

Trent said he was encouraged to meet conservatives at the Republican National Convention who sounded supportive of other policies that could help protect small businesses and the incomes of their workers—such as stronger antitrust laws.

“I think that’s because so many folks—Democrats and Republicans—have witnessed what actually happens on Main Street,” Trent said. “You’ve got these massive corporations that come into our communities, drive down the prices so that small businesses nearby can’t compete—and then once those businesses are out of the game, they jack the prices back up.”

Main Street Alliance also has a focus on policies at the state level, like raising the minimum wage, Medicaid expansion, and paid leave. They will be working to get voters engaged, registered, and educated on issues that affect their ability to afford local goods and strengthen local jobs.