Inside This Article:
- A recent analysis found that water and freezing damage claims comprised about 20% of small business insurance claims in 2025, compared to 15% in 2015.
- Fire continues to be the costliest type of loss, with average claim severity rising to approximately $80,000 in 2025, more than double 2015 levels, Risk & Insurance reported.
- Rising repair expenses, labor shortages, and litigation trends are driving up claim costs, contributing to increased insurance deductibles and coverage exclusions.
- Business owners are encouraged to review Commercial Property Insurance and Commercial General Liability (CGL) Insurance terms closely to avoid coverage gaps.
A new report shows how rising claim frequency and severity are reshaping insurance trends for small businesses. Water and freezing damage losses average $35,000 per claim and now account for about 20% of small business insurance claims—up from 15% a decade ago—while fire losses remain the most expensive to resolve, Risk & Insurance reported, citing a recent analysis by The Hartford.
The report examined more than 1 million small business insurance policies over a 10-year period and found that claim frequency and severity have risen across multiple categories, driven in part by higher repair costs, weather volatility, and increased litigation. The cost of fire losses surged from an average of $35,000 in 2015 to $80,000 in 2025, while the next most costly claim types by severity included vehicle accidents, slip-and-fall injuries, water and freezing damage, and reputational harm.
Burglary and customer injuries each accounted for about 20% of total claims, while wind and hail losses represented 15% and fire-related claims about 10% of claims, according to The Hartford’s analysis.
“Weather is becoming more unpredictable,” said Justin Ballew, Underwriter, Commercial Insurance, Burns & Wilcox, Pittsburgh, Pennsylvania. “It is creating losses in places we were not seeing them before.”
Weather is becoming more unpredictable. It is creating losses in places we were not seeing them before.
Labor shortages and supply chain constraints are contributing to rising Commercial Property Insurance claim costs, particularly in catastrophe-exposed regions, said Danny Nisenbaum, Underwriter, Commercial Insurance, Burns & Wilcox, Las Vegas, Nevada.
“In areas where you could have 10,000 buildings impacted by a wildfire, there are only so many contractors that can do the job,” he said. “They can increase their prices because the demand will back that up.”
Claims data signals growing liability risks
According to The Hartford’s review, rising costs are not limited to water and fire damage. The cost of claims related to slip-and-falls and other customer injuries increased to an average of $45,000 per claim in 2025 compared to $20,000 in 2015, Risk & Insurance reported. These incidents comprised about 20% of claims in 2025 compared to 10% in 2015.
“We are becoming a more litigious country,” Ballew said. “We are seeing individuals who would not typically sue over something who are going to now. It is a sad era where society is more litigious, and insurance companies are paying for that.”
Social inflation and nuclear verdicts may also play a role. Last year, a jury in Florida awarded $11.3 million to a shopper who tripped and fell in a parking lot in Winter Garden, Florida. “I think we are seeing juries become a little more favorable toward claimants,” Nisenbaum said.
While injury claims, which can be covered by Commercial General Liability (CGL) Insurance and Excess Liability Insurance, are often unavoidable, a history of multiple claims could point to property risks that should be addressed, Ballew said. “If a business is having a slip-and-fall every couple of years, there is probably something that needs to be fixed — a bad sidewalk or parking lot, or no snow and ice management,” he said. “When I see that, I want to make sure steps are taken to protect everyone from having that happen again.”
How loss trends are impacting insurance coverage
As claims become more costly, insurers are increasingly adjusting how they structure coverage for small businesses. “We are seeing carriers try to mitigate these losses with the deductibles they are putting in place and with water damage sublimits,” Ballew said. Sublimits are often applied to properties that have experienced prior water losses, he said, and businesses with repeated losses may face more restrictive terms or policy non-renewals.
“The big thing I think business owners forget after a loss is insurance is not going to get cheaper,” Ballew said, noting that owners should be cautious about policies that may offer a lower price but severely limit coverage. “Focus more on any exclusions and not just the price.”
The big thing I think business owners forget after a loss is insurance is not going to get cheaper. Focus more on any exclusions and not just the price.
According to Nisenbaum, the Excess & Surplus (E&S) lines market is increasingly being used to find solutions for these commercial risks, offering more flexibility to address exposures such as prior losses, older buildings, or wildfire and water exposures. The E&S market accounted for less than 15% of total U.S. commercial insurance premium before 2020 and is now closer to 25%, he said.
“Replacement after a non-renewal used to be reactionary, whereas today business owners are able to go out to the marketplace and find something more optimal,” Nisenbaum said.
Replacement after a non-renewal used to be reactionary, whereas today business owners are able to go out to the marketplace and find something more optimal.
When selecting Commercial Property Insurance or CGL Insurance coverage, business owners should pay close attention to exclusions and ask about key endorsements that can become critical after a loss. These include Equipment Breakdown Coverage, which can help pay for losses tied to the failure of systems such as HVAC units, and Water Backup Endorsements, Ballew said. Business Interruption Coverage is also often overlooked. “If your business shuts down temporarily, you need Business Income Coverage to help sustain it,” he said.
As claim trends continue to shift, it is important to work with a knowledgeable insurance broker and review policy terms carefully, Nisenbaum added. “Always be sure to speak with multiple agents,” he said. “Make sure they are willing to go over your coverage exclusions rather than just presenting the policy with the price. You may be getting a cheaper product, but is that product helping you sleep at night and protecting the business that you may have invested millions of dollars in?”
Tips to help prevent incidents, reduce losses
Many of the claims insurers see today trace back to routine maintenance and risk management gaps, from aging plumbing and outdated electrical systems to roof leaks, poor drainage, and malfunctioning smoke detectors, Nisenbaum said.
“On top of that is proper risk transfer,” he said. “As a landlord, do you require your renters to have their own insurance in case of a trip-and-fall or a bite? Are there hold-harmless agreements in place and are you an additional insured on their policy?”
As a renter, do you have your own insurance if someone trips and falls or a dog bites someone? If you own an office building or strip mall, do you have hold-harmless agreements in place?
When it comes to third-party injuries, inadequate lighting, uneven walkways, and snow or ice buildup are common contributors to accidents that can turn into lawsuits. Businesses should conduct regular inspections and document incidents promptly, which can make them better prepared in the event of a claim.
“Staff should be trained in when to contact authorities and how to report an incident,” Nisenbaum said.
Routine upkeep should be treated as a core business function, Ballew emphasized. “Individuals often forget that their business is just like their home — the building needs just as much love, if not more,” he said. “It is really important to remember that and, when a loss does happen, to stay focused on identifying the areas where we could do better next time and essentially mitigate that loss from happening again.”
