“How is my business insurance premium calculated?”: It’s a frequently asked question, and one that every business owner is right to ask.
It’s natural to want to know what factors are contributing to the cost of your premium, so you can get an idea of what sort of things are directly affecting the price that you pay.
When you get a quote for business insurance, the insurance company will assess the level of risk involved in the daily operation of your business. Actuaries (statisticians for insurance companies) will form detailed analyses on the various risks associated with different types of business and people, predicting the likelihood of someone making a claim on their policy based on historical data. Based on these statistical and mathematical calculations, the underwriting department of the insurer are able to determine which risks to insure and how much in premiums they should charge to accept those risks. Of course, if you are high-risk then your premium is likely to be higher.
The name “underwriter” derives from the maritime insurance era of Lloyd’s of London in 1688, where the bankers would literally write their name under the risk information on a slip to show that they accept the risks of the sea voyage in exchange for a premium. The cost of the premium would be higher if the risks involved in that particular voyage were higher. The sailor or ship-owner could then have some sort of financial protection should damage or loss occur whilst on their sea voyage.
Factors which may affect your business insurance premium:
- Type of policy
- Different types of business insurance policies will vary in cost.
- Type and amount of risk
- This may look into the types of contracts you have and the risks involved in what you do. If you are insuring your tools of the trade, then the type of equipment will also affect your premium to cover the cost of repair or replacement. Large, industrial-type equipment will cost more to cover than common, portable equipment such as a toolboxes or laptops.
- If you work in the construction industry, your premium may be higher than someone who works in the retail industry.
- Location of business
- The number of employees and the size of the business
- The number of employees directly affects how much you pay for your employer’s liability insurance. The more employees you have, the more you pay.
- Size of excess
- The higher your excess, the lower your premium (though you will have to pay more if you claim).
- Amount of coverage
- Obviously the more cover you need for your business, the more it’s going to cost you.
- The number of claims you have historically made
- If you have filed numerous claims in the past, then your insurance premium will be higher as you have been “proven” to be more risk-prone.
- The applicant
- Things like your age, medical history and past and current lifestyle may be taken into account to determine your “risk factor”.
- How much the company is worth
- The more you’re worth, the more you can be sued for and the more you could potentially lose.
There is no “one size fits all” policy. All companies are different, and so all premiums are different. Every business requires different levels of coverage.
Don’t forget: The simplest, most under-estimated way of cutting down the cost of your business insurance premium is usually to find a policy that is well tailored to your needs! An insurance broker can reduce the cost of your business insurance by finding the best deal possible for you.
Read our post: Why Should I Use An Insurance Broker?