What factors drive commercial property insurance costs?

From rising construction and replacement costs to increased climate-related exposures, there are a range of dynamic factors influencing commercial property premiums across Canada. For brokers, understanding these drivers is key to helping commercial customers manage risk and ensure their coverage continues to meet their business’ evolving needs.

Unsure of which factors can contribute to the cost of insurance for Canadian businesses? The following is an overview of the key operational and market level factors influencing premiums, as well as tactics business owners should consider to improve their risk management strategies.

Operational Factors Affecting Premiums

Business class plays a central role in determining premiums, as some industries face higher risks and may require specialized coverage. For example, restaurants are particularly prone to kitchen fires, often sparked by cooking operations and intensified by grease buildup in poorly cleaned exhaust and ventilation systems. In contrast, condo or strata buildings frequently face water damage claims due to plumbing overflows and maintenance issues—risks that tend to increase with the size and complexity of the building, such as the number of units or storeys.

Claims history also impacts premiums. Insurers generally assess claims over the past five years, but significant older events, such as major fire or flood losses, should also be disclosed. This history informs underwriters of a business’ exposure and overall risk management.

Experience in an industry is correlated by an insurer with the perceived risk and reliability of a business. Established businesses with strong safety protocols and fewer past claims are generally rated as lower risk. In contrast, newer businesses or those with limited experience in an industry may face higher premiums and deductibles due to the perceived higher risks of operations efforts, safety breaches, or not-yet-established risk management programs.

Market-Level Factors Impacting Premiums

Inflation and supply chain issues have driven up repair and reconstruction costs, indirectly impacting commercial property premiums. Brokers should encourage their customers to review their policy limits annually to ensure they are insuring to value, as being under-insured can result in partial claim payments or major shortfalls during a total loss. Business owners should also work with their broker to understand the importance of selecting the right business interruption indemnity period, as often 12–24 months is recommended depending on the size and complexity of operations.

Climate risks and natural disasters are also shifting insurer capacity. While wildfire exposure hasn’t significantly changed rates in Western Canada, it has led some insurers to limit their capacity in those regions. Similarly, areas prone to earthquakes and floods have seen reduced capacity even though pricing has remained relatively stable. Brokers should work closely with their customers to provide accurate and transparent risk disclosures to their insurer to ensure they have appropriate coverage.

Risk Management Strategies

Brokers play a key role in not only ensuring their customer’s coverage aligns with their evolving needs, but also in supporting their customers’ risk management strategies to proactively mitigate loss. One of the most valuable resources available to brokers and business owners is the expertise provided by insurers. Many insurers offer loss prevention services, including on-site inspections before binding coverage, ongoing consultation, and educational resources. Practical tools such as the RiskIntel^TM Snow and Ice Removal Logs, Roof Inspection Checklist, and Slip, Trip, and Fall Checklist can also be incorporated into business owners’ daily operations to reduce exposure.

Maintaining detailed maintenance records is another key element of a strong risk management strategy. Business owners should retain maintenance logs for at least two years and store them in a secure, backed-up digital format. These logs serve as important documentation in the event of a claim and reflect a proactive approach to property upkeep, which can influence an insurer’s risk assessment.

Finally, regular policy reviews are critical to ensuring that insurance coverage reflects the current needs and risks of a business. Brokers should meet with their customers at least once a year, or more frequently as needed, to review and adjust coverage limits where required. As factors like the cost of reconstruction, changes in revenue, or updates to business operations shift over time, these reviews help ensure customers remain adequately covered in the event of a claim.

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Copyright © 2025 Echelon Insurance. All rights reserved. This article is provided by Echelon Insurance (“we”) for general information purposes to help commercial property owners understand some of the factors influencing premium and how they may enhance their loss prevention strategies to effectively manage risk, and, in turn, premium costs. While we endeavour to be accurate and up to date, this information is provided “as is” and we cannot guarantee it is complete or that implementing the recommended loss prevention measures will have the desired results. ^TM Trademark of Echelon Insurance. ^® Registered trademark of Echelon Insurance.