As the cost of property and casualty insurance increases, producers have several options

James Kirsh expects the building and casualty insurance costs of his family’s Wisconsin plant that makes sheet metal parts for tractors and other equipment to at least double when it’s ready to reopen this fall.

He was told it could be three times.

The problem is that his longtime insurance company, Acuity, has told his insurance company that it no longer wants to cover smelters like his. So they will need to bundle together coverage from many different providers that are very expensive.

“It’s an industry-wide upheaval,” said Kirsh, the company’s president.

A spokeswoman for Acuity declined to answer questions about its plans to stop offering insurance to the inventor industry.

The cost of insuring everything from homes to cars in the US has increased in recent years, driven by factors including rising auto and home repair costs and more damage from hurricanes amid climate change. Auto insurance, for example, saw its biggest increase since the 1970s last year—and has even been identified by economists as the most important factor in inflation as the Federal Reserve seeks to cut interest rates starting in March 2022.

So it’s not too surprising that factories are affected.

Many manufacturers handle hazardous materials and use heavy machinery that can cause accidents and fires, which has always meant paying huge premiums. This is especially true for small producers, who are generally considered to pose more risks by insurers.

Large companies have internal risk managers who assess potential risks and have large budgets to spend on safety measures such as sprinkler systems or fireproof rooms that can reduce insurance claims.

Insurance coverage for all types of businesses—not just manufacturing—is up nearly 12% since the start of 2022, according to the Bureau of Labor Statistics (BLS), nearly three times the increase over the comparable period. during the decade before the pandemic.

It’s the scope of the latest increase that has alarmed inventors and other marketers of steel, a $50 billion industry that produces parts for everything from electronics to tractors.

“It wasn’t long ago that health insurance has gone through the roof,” said Doug Kurkul, CEO of the American Foundry Society. “But now that’s covered by property and casualty insurance.”

“Seeing near”

Overall, commercial rates for all types of business insurance rose in the second quarter of 2024, rising nearly 10% in some regions, said Loretta Worters of the Insurance Information Institute.

Worters said the rising rates are part of the inflationary spiral that is hurting the US economy. “If there’s an explosion on your property and you have to rebuild, the cost of rebuilding is much higher than it was five years ago,” he said.

Bad weather is another factor. “If you see an increase in hurricanes that damage manufacturing industries—and you keep seeing losses—you might go to the regulator and say we need to raise production rates,” Worters said.

Kate Hensley, an insurance broker in Dubuque, Iowa, who specializes in steel companies, said, “Any company that has a high probability of total loss is looked at by insurers.”

Hensley said the problem is particularly acute in industries such as foundations, which face obvious, but not limited, fire hazards. “You have other industries—such as chemicals and plastics—that carry great risks,” he said.

Hensley said the big insurers that have been covering these types of businesses in some cases are pulling out entirely, reducing the number of large insurers and leaving producers with fewer options. “It keeps happening,” he said. “They say it doesn’t matter how many security measures are put in place, how good they are—they say, ‘We can’t handle it.'”

Some types of manufacturers keep their own insurance companies—but pay much higher rates. Gent Machine, Cleveland, paid $30,785 to ensure its 2019 low-precision performance. Premiums have jumped every year since, including a nearly 28% jump between 2022 and this year.

“We went back to our agent and asked them to quote this—and they came back to us saying that every other carrier” was quoting much higher rates, said Rich Gent, the company’s vice president. “The answer I got was that our current company knows we have good stuff—that’s why they’re raising the price because what are you going to do, go without insurance?”

At Kirsh Foundry, based in Beaver Dam, Wisconsin, the question now is how much higher insurance coverage it can pass on to customers. The company is under pressure to lower prices, not increase them further, Kirsh said. Another option he is considering is to reduce the amount of cover, since the chances of the entire factory being destroyed are slim.

He said his clients “understand when I say I need to combine material, work, or benefits. But this will be a difficult conversation with our customers.”

—Timothy Aeppel, Reuters