It makes sense that a business with higher risk of claims will pay higher policy premiums and that one with lower risk will have lower premiums. The process to determine coverage premiums starts with a review of risk. Applicants submit a form to their insurance company with pertinent information. Many factors dictate premiums, including location, size, experience, claims, weather, values and more. It seems that most people complain about their insurance being too expensive, but insurance coverage should be calculated into your budget every year. When you plan and budget properly, your insurance will not be such a burden.
Location – Location – Location?
Although insurance companies look at various characteristics in determining policy premiums, location plays a large role in what you pay for insurance. Your rates may be higher if you are in a location that is at risk for wildfires, tornadoes, or other natural disasters. From Florida with its hurricane risk to the East Coast with its frequent storms, geographic location greatly impacts your premiums. Be careful when reviewing your policy; look for terms regarding higher deductibles and exclusions for wind and hail.
Besides geographical location, the physical location of your business also plays a big role in insurance premiums. The type of materials the building is constructed of and its overall condition will impact your rates, as well. Even if you don’t own the building, structures made of more fireproof materials (brick) or those with fire-resistant interior floors, walls and doors cost less to insure. Typically, newer buildings with upgraded electrical wiring, plumbing and HVAC systems get a break. Other building features that have an impact on your rates include sprinkler systems, security systems and routine maintenance.
Claims
Hopefully, you’re insured with a company that will work with you in the event of a claim, as claims do happen; this is why you have insurance coverage, after all. Typically, insurance companies look at claim frequency and severity. If both exist, then an insurer might decide that your business is no longer a good risk for them, in which case they will send you a non-renewal notice.
If you had a fortuitous claim, even a large one, an insurance company might still work with you if all the measures have been taken to prevent a similar claim from occurring. Many times after a claim occurs, your insurance premiums could go up and higher deductibles might be applied. It is important to remember that insurance wasn’t created for the insured – your business – to gain a profit; insurance is there to make you whole again.
A business owner can’t specialize in everything, so it is important to associate with people who are experts in their fields. The same concept applies to your insurance provider.
