Read in Compoundings magazine at https://ilma.ygsclicbook.com/pubs/compoundings/2025/june-2025/live/index.html#p=18.
The commercial insurance landscape remains volatile for manufacturers, marked by high premiums and limited availability in key coverage areas. While there are isolated signs of softening in some areas, coverage across much of the commercial insurance landscape remains costly and, in some cases, difficult to secure.
“Since 2017 or so, we’ve been in an era of rising premiums,” said Michael McGuire, vice president and partner at Johnson, Kendall & Johnson, an insurance and risk management firm.
At the end of 2024, the industry had weathered 29 consecutive quarters of rate hikes, with average premiums up 5.4%, McGuire said. Until a few years ago, virtually every line of coverage—from property to liability—was under assault. Today, some relief has emerged in specific areas, such as workers’ compensation, where competition among carriers has returned.
Jared Brown, senior underwriter at Axon Environmental, said softening in the casualty and environmental market should give companies more flexibility on general liability and pollution liability. However, property insurance continues to increase. “The market gets harder and harder every year. Carriers are less likely to be flexible and come down on their pricing,” he said.
Pressure on Property Coverage
One of the challenges with property insurance is a lack of capital in the market. “If you have under $100 million in overall insurable value, that’s really where there’s a lack of competition. It’s unfortunate because there are really two to three carriers that you can work with in that space,” McGuire said. “Beyond that, you’re just trying to get clever with engaging other carriers or structuring the policy a little bit differently to give yourself the best option.”
Jim Carroll, executive vice president of operations at Schaeffer Manufacturing Co., said insurers have been more incentivized to minimize their risk due to a lack of capital. “The long and short for us in that space is that we have a limited amount of people willing to underwrite and their fees are increasing,” he said.
Auto and umbrella coverage costs have surged due, in part, to increased medical and repair expenses. The price to fix a side mirror, for example, has quadrupled since 2013. “There’s a dearth of mechanics and maintenance folks, so it’s not easy to get these things fixed,” McGuire said.
Construction costs have also surged, making rebuilding or repairing structures more expensive. “Wages are up about 26% since 2020,” McGuire explained, adding that labor, including contractors, is also harder to find so buildings take longer to construct or repair. “That increases your business interruption exposure because the longer you’re out of commission, the higher your business income loss is going to be.”
At the same time, natural disasters, including wildfires, floods, hurricanes and tornados, are increasing in frequency and severity. Munich Re has estimated that insured losses from natural disasters reached $140 billion in 2024, marking the third most expensive year for insured losses from natural catastrophes.
“The more natural disasters that we have and the frequency with which we are having them makes it difficult to really allow them back off the price because they still have to pay for all the claims that are coming,” Brown said.
Legal Complexity and Litigation Costs
Uncertainty surrounding litigation is driving a lot of the cost increases. “Over the past several years, we’ve seen a big increase in nuclear verdicts where payouts are being made over $20 million,” Brown said. “Numbers like that make everyone have to sit up and take notice.”
McGuire added that there has been an increase in third-party litigation funding, in which companies finance lawsuits in exchange for a portion of the settlement.
Legal and contractual liabilities are also becoming more complex. Brown has seen an increase in the number of claims being passed from one entity to another based on language in contracts. Often, policyholders unknowingly extend their coverage to others through additional insured clauses, effectively sharing their limits, even if it isn’t their fault. “I cannot stress enough that you have legal counsel to look at your contracts and understand where the liability lies,” he said.
A Focus on PFAS
Insurers are paying close attention to environmental exposures, including the use of per- and polyfluoroalkyl substances, or PFAS. “PFAS is probably one of the hottest topics in the casualty and environmental market space at this point, primarily because we don’t know what the courts are going to do with it,” Brown said.
Regulatory requirements around PFAS, which have been called forever chemicals, are rapidly evolving at the federal and state levels, with individual states creating their own rules related to PFAS levels and clean-up requirements. “The concern is you will have 50 different states coming up with 50 different numbers, especially if you have sites in different states,” Brown said.
Insurers want to understand the manufacturer’s historical use of PFAS, including its use in formulations. “The No. 1 thing to be aware of is if your products have PFAS in them. If you don’t know, you should be asking your suppliers,” Brown said, adding that manufacturers also need to know if the companies they’re supplying products to are adding PFAS later.
Coverage for PFAS-related liabilities is largely unavailable in the current market with some companies offering blanket PFAS exclusions. However, Axos is willing to work with companies. “There are certain levels that are acceptable and some that are not,” Brown said.
Although insurance options may be limited, creative ways to build legal protections or negotiate defense coverage with carriers may still exist. “Let’s work with your broker and your carrier to determine if there are ways that we can get some sort of legal defense out of it or just some sort of protection from the insurance company,” McGuire said.
Cyber Risk Takes Center Stage
Cyber risk has moved to the forefront, even though many manufacturers don’t consider themselves technology-dependent. “Just because we might not be as connected to the cloud as other industries, it doesn’t mean there is no exposure,” McGuire said.
Manufacturers rely on software to conduct many of their daily business operations. “Generally, the biggest thing for manufacturer members is your ERP system because that is keeping track of your inventories, your production and your sales,” McGuire said.
Alexandra Bretschneider, vice president and cyber practice leader for Johnson, Kendall & Johnson, said insurance is a critical part of any cyber risk discussion. “Insurance is a reactionary product by design. It’s meant to step in if and when something bad happens to help offset that risk from your balance sheet,” she said.
Bretschneider described four primary elements that cyber insurance typically covers: incident response services, compliance with data breach notification laws, extortion and ransomware payments, and business interruption losses caused by downtime. “What is the impact to my business? If I am down, how long can I be down for? What does that look like financially on a per minute, per hour per day basis,” she said.
Steve Stasiukonis, founder of Secure Network Solutions, said any company without cyber insurance needs to get it. “I’m telling you right now, when you don’t have it, it makes things really difficult and very costly and very expensive,” he explained.
Insurers often provide valuable resources if an incident occurs, including a digital forensic and incident response firm, a restoration firm, public relations, if necessary, and legal counsel. They can also provide guidance on the front end. “A lot of the cyber insurance companies will go through and make sure you’ve done things correctly,” Stasiukonis said.
Given the frequency and cost of cyberattacks, often with ransom demands in the millions, Bretschneider said businesses should use data breach cost calculators and peer benchmarking to assess how much coverage they need. “If we’re looking at ransoms being in the millions of dollars, we still need limit left over for dealing with that incident,” she said.
In today’s market, cybersecurity policies vary widely. There is no standard form, and coverage can differ significantly from one insurer to the next. Companies must be diligent in understanding what they’re buying and how it fits their potential exposures, Bretschneider explained.
Stasiukonis emphasized the importance of being honest in the application process. Carriers now require companies to complete detailed questionnaires about their cybersecurity practices. “If you don’t fill it out honestly and you get hit, they’re probably not going to pay,” he said.
The Role of Strategic Risk Management
With fewer options and higher prices, businesses are taking a strategic approach to insurance. McGuire recommends companies demonstrate a commitment to risk management and present a clean loss history. “What can you do? Sell yourself to the insurance market,” he said. “Develop a track record of partnership.”
McGuire advises clients to review their loss ratios—claims paid versus premiums—over the past five to ten years and share them with providers. He said the goal is to keep loss ratios below 30 percent, which gives underwriters confidence in a company’s risk profile.
Demonstrating strong safety practices can also give underwriters confidence. McGuire said one of the most significant issues he sees is the inadequacy of sprinklers, which is an automatic declination for some insurance carriers. “NFPA is the gold standard,” he said. “Do flow tests to ensure your sprinklers are adequate for your building.”
Carroll said one of the frustrating situations for manufacturers is that fire suppression foam, which is needed for some chemicals, contains PFAS. “If it’s foam, you’ve got a problem,” he said.
Training employees to use fire extinguishers and holding regular fire drills can also boost safety. In addition to training, Schaeffer Manufacturing Co. brings in the local fire station and fire marshal annually to tour the facility and offer recommendations. “They have a vested interest in making sure we don’t have a fire. More importantly, if there is one, they want to know where everything is at and understand the layout of the plant,” Carroll said.
Brown noted that underwriters consider Hazwopper training, first aid certifications and general facility management, including proper storage practices. “Those kinds of things are great for us to know so that we can actually apply that knowledge to your account. The safer you’re being, the more money off I can give you,” Brown said.
David Richards, chief operating officer of Richards Apex, said facilities reviews are a common part of insurance renewals. For example, they may review storage areas to make sure facilities aren’t stacking products too high or positioning them too close together.
McGuire said there are several tools manufacturers can use to review safety, including drone surveys of the roof, infrared tests of electrical panels and weather alerts for impending weather items that might impact you. “A lot of insurance carriers can offer these for either free or reduced costs,” he said.
Public relations readiness is another factor in risk management. Axos offers discounts on Situation Hub, which can help businesses manage crisis communications in real-time and control the narrative.
“Anytime someone has massive fire, it’s going to get out, it’s going to be on the internet, it’s going to be on TV, it’s going to be on Facebook and Twitter,” Brown said. “Making sure you are prepared for things like that can also help control your future insurance costs.
The Power of Partnerships
Choosing the right insurance broker can also make or break the process. Several years ago, Richards Apex sought out a broker that better suited the company’s size. “We felt our incumbent broker was so large that they missed addressing some of our specific needs and concerns,” Richards explained. “It is imperative that the insurance companies understand exactly what we do and do not do. A bunch of this falls on the broker to communicate on our behalf.”
Manufacturers can improve insurability by helping underwriters better understand their operations. One of the biggest challenges for manufacturers is that many underwriters lack a full understanding of manufacturers’ safety and quality programs. “You’re dependent upon the agency that goes out to get the underwriter to be the go-between and the advocate for the insured,” Carroll said, adding that ILMA members need to be informed consumers throughout the renewal process.
Richards and Carroll both said they make training records, certifications safety manuals and plant procedures available to brokers and underwriters.
There’s a growing concern among lubricant manufacturers that their products are misclassified, and ILMA is engaging a consultant to evaluate how stored lubricants are classified. “Too often, insurance underwriters lump lubricants into the same category as more volatile petroleum products, despite lubricants having much higher flashpoints,” said Holly Alfano, ILMA’s CEO. “This study will result in a resource that members can use when negotiating with insurance providers.”
ILMA expects to release the document before the ILMA Annual Meeting Oct. 4-7. “This is a way for us to get information and go back to the underwriters and say, ‘This is what we know. Is this what you’re applying?’ The intent is to make us more educated consumers when it comes to insurance,” Carroll said.
Despite the headwinds, manufacturers that can show diligence, transparency, and a strong safety culture will be best positioned to weather the storm. “Develop a track record of partnership,” McGuire said. “That’s what insurers want to see.”