Employee health insurance. Commercial auto. Cyber liability. Property coverage. All four are rising simultaneously — and for small businesses with fewer than 50 employees, the combined pressure is at its highest point in over a decade. The Federal Reserve Bank of New York found health insurance costs hit harder than any other business expense last year.
According to the Federal Reserve Bank of New York’s Liberty Street Economics report released in March 2026, firms reported that the sharpest cost increases over the past year were for employee health insurance and utilities, followed by business insurance and goods and materials inputs. The NY Fed’s regional business surveys — covering manufacturers and service firms across New York and Northern New Jersey — found that employee health insurance saw an average increase of 14.2 percent among manufacturers and 12.9 percent for service firms. Some firms reported increases of between 25 and 50 percent when they renewed their coverage. For small businesses operating on thin margins, an increase of that magnitude is not an accounting line item — it is a hiring and compensation decision.
Small Business Insurance Costs — Key Numbers 2026 – 11%
Median health premium increase for small group plans — KFF/Peterson analysis, 318 insurers – 14.2%
Avg. employee health insurance cost increase for manufacturers — NY Fed, March 2026 – $17,000
Expected average annual employer health cost per employee in 2026 – 55%
Small commercial insurance customers who “definitely will” renew with current insurer — down 6 pts from 2024 (J.D. Power)
Health Insurance: The Sharpest Increase
Peterson-KFF Health System Tracker’s analysis of 318 insurers across all 50 states found that small businesses with ACA-compliant plans face a median premium increase of 11 percent for 2026 — with a deeper review of 16 states showing a 12 percent median. Insurers cite healthcare costs rising at approximately 9 percent as the primary driver, alongside higher prescription drug costs — particularly GLP-1 medications — and declining enrollment as healthier businesses migrate to self-funded alternatives.
The enrollment dynamic compounds the problem. When healthier small businesses leave ACA small group plans for self-funded arrangements, the remaining risk pool skews more expensive. Several insurers warned in their filings that the small group ACA market has seen membership declines of nearly 12 percent over the prior year, with projections of further declines in 2026.
What’s Rising Across All Insurance Lines
| Coverage Type | Increase 2025 | 2026 Outlook | Primary Driver |
|---|---|---|---|
| Employee health insurance | +12.9–14.2% | +11% median | Healthcare costs +9%; GLP-1 drug costs; risk pool deterioration |
| Commercial auto | Above average | Above average | Repair costs, medical/legal claims, attorney involvement in settlements |
| Cyber liability | Moderate increase | Measured increases | AI-driven threats; deepfake fraud; nearly half of cyberattacks target small/mid businesses |
| Commercial property | +5–10% | Stabilising | Climate-driven weather events; construction cost inflation; higher replacement valuations |
| General liability | Modest | Relatively stable | Social inflation; larger jury awards nationally; +20–30% per-claim costs |
Sources: NY Fed Liberty Street Economics, March 2026 · BF Saul Insurance 2026 Trends · SmartFinancial Jan. 2026
The Loyalty Problem — and Why Small Businesses Are Shopping
According to the J.D. Power 2025 U.S. Small Commercial Insurance Study, just 55 percent of small commercial customers said they “definitely will” renew with their current insurer — down 6 percentage points from a year ago. The study found that the drop in retention is not solely attributable to higher premiums. Insurers that communicate clearly about why premiums are rising maintain satisfaction levels comparable to insurers whose customers haven’t seen increases at all. For small business owners blindsided by renewal letters, asking for a written explanation is both reasonable and effective.
In a hard market like 2026, even businesses with spotless loss histories can see 5–10 percent rate increases simply because the overall cost environment for insurers has risen. Commercial auto remains one of the most difficult lines — claim settlements nationally are running 20–30 percent above historical averages at the same claim frequency, a phenomenon called social inflation. Insurers are not paying more claims; they are paying significantly more per claim. That math forces premium adjustments regardless of individual loss history.
The most actionable response is to shop renewals across multiple carriers — particularly valuable in the current hard market. Bundling general liability and commercial property into a Business Owner’s Policy (BOP) consistently produces lower premiums than purchasing them separately. On health insurance, level-funded plans — combining elements of self-insurance with stop-loss protection — are increasingly attractive for businesses with healthy workforces willing to accept some risk for lower base premiums.
Primary Sources
- What’s Driving Rising Business Costs? — Federal Reserve Bank of New York, Liberty Street Economics (March 2026)
- How Much and Why Premiums Are Going Up for Small Businesses in 2026 — KFF / Peterson-KFF Health System Tracker (Sept. 2025)
- 2025 U.S. Small Commercial Insurance Study — J.D. Power (Aug. 19, 2025)
- 2026 Trends & Insights in Business Insurance — B.F. Saul Insurance (Dec. 2025)
- The State of Business Insurance 2026 — SmartFinancial (Jan. 2026)