Insurance is an unavoidable cost for HVAC contractors. Given all that’s happened in the past year, from the pandemic to natural disasters, it’s inevitable that insurance costs will rise. HVAC contractors need to budget for these higher prices, work with their insurance agents when they can, and shop their premiums if they have to.

That last part often proves easier said than done. Premium prices are rising in most lines, and many businesses have had to file claims recently. This makes for a lot of unhappy customers.

The J.D. Power 2020 U.S. Small Commercial Insurance Study finds that small business satisfaction with insurance companies fell for the first time since 2014. Robert M. Lajdziak, senior consultant of insurance intelligence at J.D. Power, said premium increases drove most of that decline. This year’s worst-performing brands had more premium increases than any time in the past.

The study finds how these insurers handled the hikes mattered as much as the size. Lajdziak said business owners want to know why prices either go up or go down. They especially want to know if something they did caused the change. The best-performing carriers reached out their clients last year, either directly or through their agents, and helped them manage costs.

“That had a profound impact on how they perceived price satisfaction with that carrier, regardless of whether they experienced an increase in the past year,” Lajdziak said. “They need to understand and manage and budget their costs, whereas the consumer only cares if their price goes up.”

Insurers Rise and Fall On Outreach

A big shift in this year’s rankings in the J.D. Power survey reflects this. Chubb, a growing but relatively smaller small business insurer, jumped into the top spot. Lajdziak said a significantly higher number of customers reported Chubb reached out to them in the past year. Meanwhile, Nationwide tumbled out of the top three from No. 1. Many survey respondents reported price increases from Nationwide, Lajdziak said, although the data shows the company’s prices were actually pretty stable.

The survey found working with independent agents helps improve the perception of insurance carriers. For example, Erie Insurance, a large regional player, ranked with third in the survey. It was just behind State Farm and tied with Liberty Mutual, two high-profile companies with national footprints. Lajdziak said that was due in part to Erie’s strong network of independent agents.

Lajdziak said small business owners are looking for someone who will work with them. They were much less likely go online for insurance as consumers, even during last year’s lockdowns. Many small business owners are also unsure about the different types of insurance they need. A survey by Semsse, an online service for streamlining insurance quotes, found only about 25% of business owners report a strong understanding of their business insurance policies.

Waiting for Insurance Premiums to Increase

Ken Misiewicz, CEO of Pleune Service Co., said he views his firm’s agents as partners rather than providers. Based in Grand Rapids, Michigan, Pleune provides commercial services across the state and employs more than 100 people. The firm depends on the agents it works with to guide management to the best insurance options for the many lines it needs to carry.

Pleune only shops premiums every three years to maintain these strong relationships. This isn’t one of those years, Misiewicz said. As a result, the firm’s management is preparing for higher prices this spring. This is where the agents play a crucial role in helping to budget for those increases.

“We’re waiting for the other shoe to drop because we’re waiting for renewals to happen,” Misiewicz said. “I think that’s where we’re all going to get really ugly surprises.”

Insurance rates reflect the attempts by underwriters to match policy premiums to risk characteristics, said Nate Oland, senior national account executive at Federated Mutual Co. Underwriters are current focused on risk management, such as safe driving practices, responsible hiring practices, and proper training. Federated partners with ACCA and presents annual awards to HVAC contractors that follow these best practices.

Some insurance incidents are unavoidable despite any planning and training. This was demonstrated last year when property faced an array of threats, from fires to hurricanes to civil unrest. Oland said Federated works with its clients to prepare for these hard-to-predict events with recovery planning.

Other times, HVAC contractors face higher insurance costs regardless of anything that they did or that happens to them. Instead, its issues with particular lines. Umbrella insurance is one example. This is a type of insurance that covers costs that go beyond other liability coverage limits. Oland said the insurance industry as a whole has experienced harsh profitability performance as a result of writing commercial umbrella insurance. This has led to a decreased availability of umbrella limits, and increasing policy premiums.

“There are many forces driving this trend, but a few include societal and litigation trends and auto liability concerns,” Oland said.

Smallest Businesses Feel Biggest Impact

Misiewicz’s biggest concern is worker’s compensation, which is especially expensive in Michigan. Lajdziak said worker’s comp and auto insurance are always the biggest drivers of satisfaction. The good news here is insurance companies have enough experience in these areas that they maintain many best practices for both.

Events that occur less often cause more issues. Business interruption insurance provides a good example of that. Many media outlets reported dissatisfaction among small business owners who claim their insurers failed to make the payments they expected. Lajdziak said the main issue was unexpected cost. Claimants saw their rates increase and decided not to renew or switched carriers.

The smallest businesses were the least satisfied with their insurance carriers last year, Lajdziak said. These are companies with fewer than five employees. He said those business typically receive the least support from agents and carriers because they pay less.

Age also seems to play a role. Semsse’s survey found 50% of Millennial and Gen Z business owners said they've been surprised to find that something wasn't covered by their policies that they expected to be. Only 21% of Baby Boomers say they've had the same experience. Business interruption, cyber risk, personal injury, and water damage are some of the examples cited by survey respondents.

Regardless of the size of the business of the age of the owner, Lajdziak said the best make their clients feel confident that they have more than enough coverage for anything that could happen. And as businesses learned this past year, anything can happen.