With insurance costs rising, you may be looking at your insurance costs wondering how much you should really be paying in insurance. This largely depends on your industry and the risks associated with your particular business, however, there are some standards that help give you a rough estimate!
Typically business owners spend between 1-3% of their revenue on insurance coverage. A lower-risk business might be closer to the 1% range, whereas a higher-risk business would be around 3%. The highest-risk businesses can invest as much as 5% of their annual revenue in insurance coverage to offset the possibility of catastrophic losses.
The risk factors that contribute to higher insurance costs include:
Each industry has an inherent level of risk associated with it. These different levels of risk play a large role in defining your costs. The details of how you run your business can also affect your business insurance costs. If you’re a restaurant allowing your customers to cook their own food (think Korean BBQ), you may have more risk than a typical restaurant owner.
Insurance carriers view business owners with more experience as being in a lower-risk category. Typically you’ll be asked how many years you’ve been in business, what level of education you have, and what your employee’s qualifications are. More highly educated workforces are likely to be assumed to be lower-risk to an actuary at a carrier.
Growing your business can cause your insurance costs to grow. Higher revenue leads to more customers, more square footage, and more employees, which, in turn, increases your risk. In addition to the workers’ compensation costs that would of course increase, operational complexity adds to risk, the more hands, the greater the risk of someone getting hurt or something going wrong.
Your Business Location
Where you work plays a large role in your insurance premiums. The more square footage you have, the physical condition of your building, and the physical location of your business (flood zones, high crime rate, fault lines, etc.) lead to higher costs and an assessment of being a higher-risk company.
One recent factor that has been raising the costs to insure businesses is changing fire zones. If your business is located in a high-risk fire area, then your insurance is going to be more expensive. As climate change increases the areas considered high-risk fire zones, many businesses that did not have this increased rate adjustment are seeing their costs rise. This is true for any external impact (flood zones, high crime rate, fault lines), with the higher risk there will be higher costs for your business.
The number of employees you have may lead to higher insurance premiums. With more employees, you may need to invest in various different types of insurance, like Workers Compensation, Errors and Omissions, and General Liability. Your insurance premiums can also depend on the positions of your employees. Qualified ALEs will necessarily have different requirements, risks, and costs than Small Business Owners.
Your Chosen Policy
The more policies you add, the higher your premiums. The nature of your business may determine which policies you need to invest in, other times it can be up to you. AS you assess what coverage you need be aware of what a catastrophic loss would do to your business, your personal finances, and your company’s ability to operate. Cyber coverage was often overlooked before the recent wave of ransomware attacks, now, business owners are actively looking at their data vulnerabilities.
Your Prior Claims history
Lastly, your claims history has a large impact on your insurance premiums. If your company has a long history of filing claims for loss or damage, insurance companies will charge higher premiums to cover the risk of insuring your business. If you are looking for ways to reduce your premiums, there are risk-reducing operational steps you can put in place.
Has your insurance increased this year? Learn why with Benchmark’s Rob Cohen. READ MORE HERE.