Customer conversation guide on inflation and economic challenges

Businesses have had a wide range of economic issues to grapple with over the past year: Shifting tariffs, persistent inflation, impacts of severe weather, labor challenges, high interest rates, and rising energy costs. 

These challenges have placed economic pressures on businesses to the point where a growing number of business leaders have indicated they are considering reducing their protection, or have already taken that step and are knowingly underinsured. 

Nationwide’s recent survey of small and middle market businesses found that: 

• A third of small business owners (SBOs) and 38% of middle market business owners (MMBOs) are renegotiating or seeking competitive bids with their current carrier. 

• 32% of SBOs and 36% of MMBOs are increasing deductibles to lower premiums. 

• 27% of SBOs and 35% of MMBOs have reduced or eliminated certain optional coverages to reduce expenditures. 

Our survey of commercial property stakeholders also indicated:  

• 76% are looking into options or interested in ways to cut costs. 

• 54% are opting out of optional coverages. 

• 42% said they would consider reducing their property coverage to help reduce expenses. 

• 27% knowingly carry inadequate coverage (8 points higher than respondents a year ago). 

These sentiments indicate how price conscious business owners have become. 

What’s driving cost increases for businesses

Uncertainty has been a hallmark of the recent economy and many businesses are taking a cautionary look at their bottom line in case economic conditions trend downward. We’ve compiled some of the primary macro-scale cost drivers along with actions that customers can take to mitigate impacts to their bottom line. 

Customer conversation tip sheet

Weather risks

The National Oceanic and Atmospheric Administration reports there have been 115 severe weather events over the last five years that each caused $1 billion or more in damages (an average of 23 events per year). This extreme weather resulted in $746.7 billion in total damage costs during this period. As recently as the decade from 2010-2019, there were 13 such events per year. The increased frequency and severity of these events is a critical issue for insureds, agents and carriers alike. 

Through 2025, there were 23 billion-dollar confirmed events costing more than $115 billion.¹ While no hurricanes made landfall in the United States in 2025, wildfires and severe convective storms drove the majority of losses. By comparison in 2024, there were five hurricane landfalls in the U.S. among 27 billion-dollar disasters through the year, totaling $182.7 billion in damage costs (the fourth highest total since 1980), according to NOAA.² 

These large-scale damaging events can have wide-ranging impacts on businesses, such as disruptions to operations and supply chains, lengthy power outages, shortages of labor, and rebuilding costs. 

General inflation

Inflation can have a significant impact on insurance rates, as well as other effects related to insurance coverage. The rising cost of claims can be seen across various categories of insurance losses, including medical services and vehicle repair/replacement. Perhaps most significantly for commercial insurance policies is the impact on commercial property. 

While the annual inflation rate is much lower than its peak a few years ago, it still remains elevated above the 2% benchmark preferred by the Federal Reserve. The most recent report on inflation showed that inflation is at a 2.7% annual rate.  

This report also showed that recent inflation has impacted auto repair (11.5% YoY – record, 5% jump from August to September – record BLS), construction costs, and energy (11.5% for gas service and 5.1% for electricity). 

Building material costs for nonresidential construction overall are 2.6% higher year over year, led by increases in copper wire and cable (13.8%), steel mill products (13.1%), switchgear and industrial controls equipment (10.5%), iron and steel (9.2%), and plumbing fixtures (8.2%). Even softwoods lumber, which has seen price decreases since 2022, has had an uptick of 5.2% over last year. 

Impact of tariffs

The tariffs raised in 2025 have generated $287 billion in tax revenues, but have impacted profits in the U.S. and around the globe. Some companies being tracked projected a combined full-year hit to profits as high as $17.9 billion. 

Business owners have had to weigh important decisions as the tariff environment evolves, such as whether to source new suppliers, pass on full costs of the tariffs to consumers, or absorb some of the impact – but reduce their profits. 

As they balance this decision, they also have to decide how much – or if – they are going to make investments in their business, such as hire workers, deploy new technology and systems, or expand their physical footprint. 

Different industries also have different levels of exposure to tariffs. Manufacturers – particularly automotive and electronics – are hit especially hard, and construction and retail are also sensitive to increases in tariffs.  

Similarly, not all product categories, and countries are impacted the same way, which requires business owners to be vigilant about what materials they source and where they source them from. However, some specialized materials with particular origins leave them with little choice. 

This environment heightens the need to take a personalized approach for each industry and business. 

Energy costs

Energy costs have increased rapidly over the past several years. Between 2021 and 2024, electricity costs increased more than 21%. Over the past year, electricity prices for commercial customers has continued to outpace inflation with an approximately 4% increase in 2025.   

Energy consumption and costs can vary depending on the industry and region, but as an example small and medium industrial plants spend approximately $125 billion on electricity annually. Costs are expected to continue to increase due to factors such as data center growth and electric vehicle usage. 

Motor systems, compressed air systems, HVAC, and lighting are all significant sources of energy consumption for buildings and should be monitored closely for efficient operation to help reduce costs. 

Conversations with clients

What actions should customers take to mitigate risks due to inflation and higher business costs? Specifics depend on individual circumstances and specific exposures of each operation, but there are some key areas to focus on: 

1. Implement risk management programs. Even during lower inflationary periods, a business’s bottom line can be impacted by the specific risks it faces. Creating a strong safety culture can reduce frequency and severity of losses and reduce the potential of out-of-pocket claims costs. 

• Businesses that have established risk-mitigation practices — such as safety training for their employees, reinforcing the importance of loss prevention, and developing a business continuity plan — perform much better than businesses that do not have these characteristics. 

2. Gain efficiencies. As expenses increase, business owners should be looking at their operations for ways to gain efficiency. Are there opportunities to optimize workflows and help increase employee productivity? Are there unused software subscriptions or outdated technology that is expensive to maintain and can be replaced or eliminated? 

3. Review business insurance policy details and coverage limits. Under the current economic conditions, one of the biggest questions to consider – from an insurance perspective – is if they have adequate coverage. 

• Review policy terms and conditions to ensure full protection if a loss occurs. 

• Evaluate issues that could impact coverage, such as how labor and supply shortages may affect estimated replacement costs. 

• Confirm that replacement cost coverage is part of the policy and that the replacement cost estimate is accurate.

4. Reassess property valuations. During inflationary periods, it’s especially important to review property valuations annually to ensure coverage is keeping pace with repair and replacement costs. 

• Detailed information on the covered property’s construction can impact the valuation. This review should include real property (buildings, pavement, land, plumbing, electrical, etc.), business personal property (such as furniture, machinery, supplies, tools, etc.) and business-income limits (loss of income or profits due to covered peril). 

5. Supply chain management. Inventory management, locking in more favorable pricing with suppliers, diversifying suppliers and optimizing logistics can help mitigate disruptions and pricing shocks. 

Additional resources for commercial agents

You can learn more about economic issues from our Economics Insight podcast, and you can share the risk management resources below with your clients to help them reduce the risks of potentially costly disruptions from occurring: 

• Vehicle and driver safety page 

• Nationwide’s Toolbox Talks for construction firms 

• Industry-specific libraries on the Risk Management Solutions Center