What Does Business Insurance Cost?

Learn what impacts the cost of your business insurance and what you can and can’t live without.

The overall inflation in 2023 may have been down to 3.4% compared to 7% in 2021 and 6.5% in 2022, but many business owners are still looking at ways to lower their overhead. As we come into the new year, it makes sense for you to look at your expenses and see where you can cut costs. Insurance often comes under consideration when looking for ways to increase profit margins. Before you fall into the trap of shopping for a better rate that could end up costing you more in the long run, let’s delve into a few aspects that go into costs of your business insurance.

How Your Industry Impacts Your Business Insurance Premium

You probably know that the more risk commercial insurance companies think you have, the more you’ll end up paying for business insurance each month. But did you know that your specific industry may be considered a greater risk factor than others? There are even companies that specialize only in high-risk industries ranging from blue-collar to white-collar and everything in between. Some industries that usually show up in the high-risk category are carpentry, medical, manufacturing, retail, and transportation.

Bigger Businesses Have Bigger Insurance Bills

The size of your company can have as much of an impact on the costs of your business insurance as the industry you’re in. The physical size of your building, additional furniture needed to fill it, more employees, and amount of materials all play into your premium. Your tools and equipment, covered in your specific tools and insurance policy, inventory, and other materials are considered when building your insurance package because they contribute to your replacement costs. The more expensive your replacement costs are, the higher your insurance costs.

Revenue Can Raise Your Business Insurance

Contrary to what you may expect (or hope for), a lower revenue actually comes with a lower insurance premium. It can feel like your business is being penalized for growing and increasing your revenue stream, but when you consider the impact a catastrophic event would have on a 300-unit rental property compared to a 2-bedroom rental house it’s easier to understand. Plus high revenue is an indicator of a large number of customers to your business, increasing your chances of being sued or held liable for bodily injury claims or property damage incidents.

Claim History and Commercial Insurance Rates

Just like with car insurance, a history of making claims usually raises your montly business insurance cost. Insurance companies use the claims you’ve made in the past as an indicator of claims you might make in the future. This is especially true if you’ve made claims on a property you still use, a service you provide, or a product you sell. Insurance companies see that as a higher risk of further issues or recurring incidents. Plan for any claims you’ve made to be included as insurance companies determine your premium.

What Your Business Property Means for Commercial Insurance Premiums

As mentioned earlier, larger businesses have bigger insurance premiums. But there’s more that goes into it than just your property’s square footage. Larger businesses have higher risks for claims like theft and accidents than smaller counterparts. But the location and materials your building is built from also impacts your monthly costs. For example, states like Mississippi, Wyoming, and Iowa have relatively low commercial insurance prices while states like New Jersey, California, and Connecticut have higher rates. Things like flood zones, crime rate, and frequency of natural disasters also play a role in the overall cost of insuring your business property. 

How to Reduce Insurance Costs

Before you start to feel too discouraged, there are some things you can do to help counteract some of the factors that lead to higher commercial insurance rates. Like with your medical or vehicle insurance, a policy with a high deductible comes with a lower monthly price tag. You can also combine multiple coverages in a single policy and implement policies and procedures within your business to preemptively mitigate some potential risks, like having smoke detectors or security cameras. 

All in all, insuring your business is a cost you can’t avoid entirely. There are ways to lower your premiums, like having a higher deductible, that are within your control. But some things like industry and where your business is located aren’t something that you can change. One of the most important steps you can take to get the best coverage and the best rate for your business is to speak with a trusted insurance agent.

Are you ready to see what your options are? Let’s schedule a quick review of your current coverage.

Have additional questions? Call us at 503-912-8839 or email me at mspivey@orrandassociates.com