7 Factors That Drive Business Insurance Premiums

7 Factors That Drive Business Insurance Premiums

As a business owner, you know that having the right insurance in place is essential for your success.

But did you know that several factors can affect the overall cost of commercial insurance?

From your location to the industry you’re in and even your company size, various elements impact what you pay for coverage.

In this blog post, we’ll look at the seven factors that drive business insurance premiums and how they might shape what policyholders like yourself will face when it’s time to renew or make changes.

If you’re curious about what drives business insurance premiums, read on!

1. Potential Risk

The level of risk associated with certain industries is a major determinant of the cost of your business insurance.

For instance, industries such as construction are inherently more dangerous than others, with a higher likelihood of visitor injury lawsuits. In contrast, retail or office businesses may have lower risk levels.

The higher the risk of your business, the higher the cost of insurance coverage will likely be. However, smaller or lower-risk businesses typically enjoy more affordable rates.

2. Claims History

A business’s claims history can significantly impact future insurance rates, whether the claims are valid or frivolous.

When applying for business insurance, insurers will typically request a background check that includes reviewing the company’s claims history. While obtaining coverage with open claims is still possible, businesses should anticipate being offered higher premiums.

This is because insurers view many claims as an indication of increased risk, making coverage more expensive for certain businesses.

One type of business insurance that can provide protection is Errors & Omissions insurance (E&O). E&O insurance is a form of liability coverage that shields companies, their employees, and other professionals from claims of inadequate work or negligence brought by clients.

Any service provider should consider having E&O insurance to safeguard against legal liability for claims of financial loss, bodily injury, and/or property damage arising from mistakes or negligence.

3. Number of Employees

The size of a business can also impact Professional Liability Insurance and General Liability Insurance rates in terms of the number of employees.

Certain insurers may consider the number of employees as a factor in determining the level of risk associated with your business. The higher the number of employees, the more risk there may be, which could result in higher insurance premiums.

4. Annual Income

A business’s annual revenue is a significant factor that influences the cost of commercial insurance. A prosperous and thriving business has more to safeguard in case of an unforeseen event.

Moreover, such businesses usually have a larger customer base and are exposed to more risk. As a result, companies with higher annual incomes tend to pay higher insurance premiums.

5. Business Location

If your business is situated in an area with extreme weather conditions, such as:

  • tornadoes,
  • floods,
  • or heavy snowstorms,

… it is more susceptible to property damage.

Insurance companies perceive these locations as high-risk areas and may offer insurance at higher rates.

Similarly, if your business is located in a high-crime area, you may face higher insurance premiums since it is at a greater risk of theft or vandalism.

6. Credit Score

Business insurance rates are determined by the insurance credit score, which is based on a specific set of information available in your credit report. This includes the following:

  • payment history
  • collection activity
  • the number of outstanding loans
  • and outstanding credit cards.

It’s important to note that this score is different from your traditional FICO score, although it generally follows the same trend.

If you have a history of missed credit card payments or defaulted debts, insurance companies may view you as a higher risk and offer higher rates.

Bankruptcy can also hurt your insurance credit score and result in higher premiums. However, once the bankruptcy drops off your credit report, typically seven years after discharge, the insurance rates will be adjusted accordingly.

7. Employees’ Driving History

As an employer, it’s important to consider the potential implications of an employee with an unfavorable driving record.

If they are involved in an auto accident while driving on your behalf, you can be held accountable for any injuries caused. This is particularly concerning if the employee has their license revoked, canceled, or suspended due to alcohol, controlled substance abuse, or felony violations.

A bad employee driving record can increase your commercial auto insurance premiums and make you ineligible for insurance with certain companies.

It is crucial to understand the potential impact of your employees’ decisions on your business and take appropriate measures to minimize risk.

No matter what type of business you operate, it is important to be aware of the 7 factors that drive business insurance premiums. A clear understanding of this information will help you ensure your business and its operations are adequately insured against risk.    

NE Insure has been providing business insurance since 1989 and has a team specializing in Business Insurance. If you need or would like a review of your business insurance needs, click here or call (800) 443 7007.

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