Many employers view insurance as a mandatory monthly payment that offers a little bit of security, and nothing more. However, an insurance policy can be a lifeline for a business in the event that you need to claim it for whatever reason, whether it’s property damage, an expensive worker’s compensation claim, or a legal liability.
As such, it’s important to be broadly aware of how business insurance works and how much you are generally expected to pay per month for it. While you can’t always predict this figure spot on, you can make an informed guess and broadly estimate it based on your company’s profile and other pertinent information.
Insurance is one of the things that differs from business to business, and insurers calculate it based on their own preset criteria. If you want to know what impacts your business’s insurance policy price, then you’re in the right place. This article will delve into the key factors that influence your business insurance to help you make the best decisions when acquiring and claiming it.
Let’s jump right into it.
1. Your Claims History
One key factor that can affect the type of insurance policies available to your business, as well as how much you pay for them, is your history of past claims. If you’ve had previous dealings with insurers and had to file a claim with them, then your new insurer may discreetly factor that in when evaluating how much premium you’ll pay. This is especially true if your business has had a history of claiming insurance policies multiple times across different insurance types.
A history of frequent claims can lead to your insurance quotes having an increased premium, as insurers may deem your business a high-risk entity to insure. The price increase protects the company from potential payouts down the line.
On the contrary, if your claims history is a clean slate, then insurers may be more likely to charge your business a fairer price for your insurance policy. In their eyes, your company is seen as a more careful and responsible organization, which is exactly the type of customer these companies are trying to find and serve.
Having said all that, it’s a good idea for your business only to claim insurance when you absolutely need to. While your business deserves to get claims during dire situations, it’s best to claim them only when you’re certain you can get something good out of it. Rejected claims can still impact future insurance policies negatively, so be sure that your business is ready with it before proceeding with the filing.
2. Your Business Operations and Records
Another vital piece of information insurance companies look for is your business’s records and operational details. Depending on the type of insurance you’re getting, your insurer will look into your company’s profile closely and determine a price based on the risk present in your operations.
For instance, workers’ compensation insurance providers will ask about your industry, the types of work performed by your employees, and your company’s safety records. They’ll also look into your business’s history of workplace injuries, safety protocols, and employee training programs.
On the other hand, commercial property insurance providers may look into the type of building your business occupies, its construction, fire suppression systems, and security measures. They will also consider the nature of your business operations and any potential hazards associated with them. Legal matters such as fraud and compliance with industry regulations will also be reviewed.
From there, they’ll offer a corresponding insurance policy, with low-risk businesses getting generally cheaper rates and high-risk businesses getting the opposite. Naturally, a cleaner record and safer operations will mean a more affordable premium. As such, consider implementing robust safety measures and maintaining excellent operational records to ensure that your next insurance policy falls within a reasonable price tag.
3. Your Business Credit Score
Insurers scrutinize your business’s profile far more closely than you may initially realize, and one factor that plays an important role in determining your insurance premiums is your business credit score. Your credit history can reveal a lot about your company’s attitude towards paying on time. If your business has a high credit score, it shows that you’re in control of your cash flow and responsible for how you pay your debts.
On the contrary, a poor business credit score can signal to insurers that your company may not be a responsible payer. This may cause them to charge your business higher premiums or reject your insurance application outright.
The solution is a straightforward one: Work on raising your business credit score to make your application look more appealing to the insurance company you’re getting insurance from. Start by practicing good financial habits like paying your business debts on time and reducing your overall business debt. This way, you can gradually make your company’s profile look more respectable in the eyes of these insurers, thus reducing your potential premiums in turn.
4. Your Business Location
Another key factor to consider when determining your business insurance policy is your location. Some states and territories have a generally higher cost of doing business than others, and this naturally extends to insurance premiums too. On top of that, some areas have generally more dangerous environmental factors (e.g., prone to natural disasters), higher crime rates, or traffic congestion that could push the price of insurance up.
It’s important to factor these things into the equation when shopping around for an insurance policy. For instance, businesses located in areas prone to natural disasters like bushfires or floods may face higher property insurance costs. Similarly, businesses in high-crime areas might see increased premiums for theft and liability coverage.
On the contrary, if your business is located in a flat, low-risk suburb in a quieter town, then you may have naturally lower insurance premiums. In any case, where your business is located can play a big role in shaping your insurance policy’s price, so don’t be surprised if a competitor from across the country with a similar business profile has a much lower (or higher) insurance premium than you.
5. Your Business Age and Experience
Another influential factor that can dictate your business’s insurance policy’s price and coverage is its age and operational experience. In fact, age of the business is one of the first things insurers look into when assessing a client’s profile. However, this can be either a good or bad thing depending on the type of insurance you’re getting.
Typically, newer businesses may be automatically generalized as high-risk clients when applying for certain insurance plans due to their lack of established operating history and potential higher likelihood of unforeseen issues.
On the other hand, established businesses with a proven track record of safe operations and financial stability can often secure lower monthly rates due to the lower likelihood of needing to claim. Of course, this would only apply if your business doesn’t have any major operational or financial problems in the first place.
In any case, your business’s age tells a story to your insurers. Even if your new business is highly efficient and responsible, the reality is that you may still be locked out of better insurance deals because of its relative youth.
6. Your Add-Ons and Customization
As you’re well aware, insurance isn’t a package that’s uniform to all; it’s customizable and tailor-fit to the individual business’s profile. Many insurance providers offer add-ons on top of the base insurance coverage to incentivize businesses to spend a little bit more for extra protection or enhanced services.
For instance, commercial auto insurance providers may offer roadside assistance for company vehicles, cargo protection, and coverage for specialized equipment to incentivize users to choose them over the competition. These things may raise the price of the premium slightly, but the added services and coverage can be helpful in a pinch.
Business liability insurance policies may also offer add-ons like extra cover for professional errors, product liability, or cyber liability needs. This can be especially useful for businesses who predict that they may need these services in the near future. That said, it’s important to be strategic about it and estimate costs beforehand, as these coverage add-ons can also lead to excessive losses due to the inflated monthly premium.
In any case, any additional add-ons to the insurance policy can alter the final cost of the insurance product’s monthly premium price. We hope we’ve laid out what impacts business insurance clearly for your future benefit.
Best of luck in staying protected!
