When major coastal and inland flooding hit Maine this past winter and spring, some business owners were hit with another terrible yet all too common shock: their insurance policies did not cover the losses they thought they would. Now, as renewals roll in, Maine residents who were ready to increase their coverage might not be able to afford it. Premiums for real estate, liability, inland-marine and more have gone up across the board, sometimes by almost 20% according to Insurify.

What’s going on?

Climate change has created turbulence in industries around the world, but it has put insurers in a particularly tight spot, as they bear the economic burden to make customers whole after a disaster.

Insurance models have long been based on the idea that frequency and severity of disasters are inversely related. But with climate change, frequency and severity are increasing in tandem. Most models that create pricing structures and determine risk are not built for these new conditions.

Last year, insured property losses in the U.S. were nearly $80 billion, according to the Insurance Information Institute. That followed $114 billion paid out in 2022 and $106 billion in 2021. To remain sustainable and able to make clients whole when they experience major losses, insurers have had to raise prices.

So, for business owners contending with their own tight profit margins, it is likely that when they renew policies this year or next, they will be paying higher premiums for less complete coverage.

What should you do?

Matthew Daly is the Senior Vice President of Construction Practice at Hub International, where he oversees the practice which services the industry from regional general contractors all the way to mega construction projects greater than $500 million. Daly says that in addition to managing increased insurance and financing costs, the industry has also contended with rising costs for material, equipment and labor, which have gone up 46% in the last five years.

With so much at stake, it is not surprising construction and development firms take climate change’s destructive potential seriously, and smaller businesses can learn from what they do.

1. Renew as early as possible

In these unpredictable times, business owners should be planning for insurance renewal as much as 150 days before the deadline. While that’s a lot of time compared with the 60 to 90 days before renewals that companies have allotted in the past, this extra time will give people time to explore all their options and obtain adequate coverage.

2. Consider adding flood insurance

Flooding is the biggest environmental threat to New England. No matter where you are in Maine, new models show that flood insurance for your home and business is a smart investment. The structure and contents of any property can be covered by the National Flood Insurance Program (up to a certain limit), but private market policies would be needed to cover productivity loss or assets over that limit.

3. Better know your policies

Knowing why insurance costs are rising produces a clearer picture of economic forces at play, but regardless of reason, business owners simply need to know they are adequately covered while staying on budget

Daly said ensuring you are partnered with an expert insurance broker is the best way for a business of any size to manage their policies. “With both experience and data to reference, expert brokers will help a client imagine the unimaginable, understand their terms and conditions and, if they have to settle for a not-entirely-adequate policy, make sure they’re not in for more stress on what will already be a dreadful day.”

4. Be prepared

While having comprehensive insurance coverage would be the ultimate peace of mind, the upfront cost may not be affordable. Creating action plans that anticipate and prevent disasters will save time and money while creating stability in potentially chaotic situations. “Whatever ‘it’ is, the biggest goal for my clients is to be prepared with an action plan: don’t just wait for it to happen and don’t be reactive,” Daly said.

Since water damage is one of the most common sources of claims, as an example Daly said he sees 10-page documents for what to do when a single pipe is leaking in a building, and labels on every pipe so service providers know where they go. For smaller brick-and-mortars (or even your private residence), Daly said simply knowing where the water shut off is and how to turn it off before the plumber arrives could make a difference of thousands of dollars.

While they don’t have to be 10 pages, Daly recommends everyone with real estate holdings create their own thorough documents and share them with all interested parties. If the flood insurance policy won’t cover a building’s contents, moveable items should be stored on high shelves or temporarily removed. Landscaping should be maintained to prevent tree falls or reduce fuel for a wildfire (yes, wildfires are on the rise in New England.) Daly also suggested researching the restoration services that you could potentially need—electrician, mold removal, pest control, smoke damage clean up—and contacting them to build a relationship before you even need their services.

How will you move forward?

“Managing risk will be subjective for each business, but that’s a value add that an expert broker like Hub International brings to a small business,” Daly said. “We have groups that are constantly investing in advancing our data models, learning more and staying up to date.”

If unpredictability is the only predictable thing about climate change, preventing potential losses before they happen will be key to any business’s long-term health. By making plans, putting them into action and actively anticipating change, business owners will be able to quickly get back on their feet after surviving a worst-case scenario disaster.

Have more questions? Need to re-examine your policy? How about a new one altogether? Contact your broker today or reach out to Hub International to get started.