All business owners need to be aware of what can cause these rates to fluctuate and what exactly they can do about it. Business insurance premiums are not fixed; they are influenced by a wide range of variables, including industry risk, location, claims history, coverage limits, and even broader economic conditions. Without a solid grasp of these elements, it can be difficult to anticipate costs or make informed decisions about coverage.
In this guide, we explain exactly what affects the cost of business insurance and commercial insurance premiums, how much you can expect to pay, and what you can do to reduce your costs.
What is business/commercial insurance?
Essentially, the term “business” or “commercial” insurance refers to an insurance policy and coverage types for all businesses. It’s made up of a bundle of separate insurance products, and your coverage is customized to fit your business model and needs. To be eligible for commercial insurance in Ontario, your business has to be registered in the province. When it comes to business insurance, policies are NOT one-size-fits-all.
Business Insurance | Commercial Insurance |
Provides financial coverage should a claim be filed against you. Also provides coverage if your business assets are damaged or stolen. | Crucial in protecting your business from potential loss caused by unforeseen and unfortunate circumstances. |
What are the types of business coverage?
There are numerous types of insurance for businesses. Four of the most common are:
- Professional liability insurance
- General Liability insurance
- Contents insurance
- Cyber Liability insurance
The combination of these coverages helps prevent major losses when a lawsuit threatens your company or when your business belongings, such as equipment or furniture, are lost, stolen, damaged, or destroyed.
Protect Your Business
Request a free commercial insurance quote today and keep your business secure.
What are the five factors that affect the cost of business insurance?
Business insurance may cost an average Ontario company anywhere from $500 to $5,000 annually. However, depending on the business, commercial insurance policies can cost hundreds of thousands, or even millions, a year. The main factors that affect the cost of business insurance include:
- Potential industry risk level
- Claims history
- Number of employees
- Annual income
- Business location
1. Industry Risk Level
Certain industries are inherently at much higher risk than others, so risk is a major factor in business insurance. Fortunately, smaller businesses or businesses with lower risk will benefit from more affordable rates. Let’s break down some different types of business with the risks associated with the industry to determine how high their premiums can be:
Size of Company | Definition | Risk Factors | Average Annual Costs |
Small Risk Company | Home-based companies and consultants. | Data breaches, professional errors, inventory loss, and unpredictable income. | Low |
Moderate Risk Company | Accountants, retailers, web developers, media companies, IT. | Data breaches, professional errors, employees, renting, high risk tenants. | Moderate |
High-Risk Company | Construction, demolition, mining. | Employees, accidents, property damage, international transit or import issues, and commercial vehicles. | High |
Learn more about the essential types of start-up business insurance here.
2. Claims history
Your business insurance claims history affects future rates. Whether frivolous or genuine, business insurance claims can be very damaging to any type of business over the long term.
If you have open claims against your company, you can still get approved for business insurance, but you should expect to be offered a higher premium. Insurance companies view a high claims history as a risk, which is why certain businesses pay higher coverage rates.
Errors and Omissions Insurance (E&O)
Error & Omissions insurance (E&O) is one of the types of business insurance that can protect you and your business. E&O insurance is “ a type of liability insurance that protects companies, their workers and other professionals against claims of inadequate work or negligent actions made by clients.”
It protects companies, owners, and employees against legal liability for claims for financial loss, bodily injury, and/or property damage arising from mistakes or negligence by those who provide professional services and advice.
3. Number of employees
Professional Liability Insurance and General Liability Insurance are most commonly affected by a business’s number of employees. Some insurers will use the number of employees you have as a measure of how big your business is, and therefore, the amount of risk involved.
4. Annual income
One of the largest contributors to the cost of commercial insurance is annual revenue. The more lucrative and successful a business is, the more it must protect itself when threatened.
High sales also mean you likely have more customers and more risk exposure. For this reason, the higher the business’s yearly income, the higher the insurance premiums are likely to be.
5. Business location
The location of your commercial business plays a significant role in your business insurance rates. For instance, if your company is located in areas that are more prone to claims being filed. Here are some examples:
- Extreme weather that may cause structural damage (tornadoes, floods, severe storms, etc.)
- High-crime areas with a higher risk of theft or vandalism.
What are some other factors to consider about business insurance?
Your deductible
A deductible is an amount of money that you yourself are responsible for paying toward an insured loss. When a disaster strikes your home, or you have a car accident, this amount is subtracted, or “deducted,” from your claim payment.
If you are a business owner, it may seem desirable to choose a higher deductible because it allows your insurer to reduce your policy’s cost. If an accident does occur, it means that you are going to be required to pay a lot more money out of pocket.
Insure Your Livelihood
Protect Your Business Today So You Can Grow Tomorrow
Business history
When it comes to purchasing E&O insurance, your contracts and work history can greatly affect the cost of your coverage if you purchase the prior acts coverage. Your provider will probably ask for a list of your previous work history and contracts. You may not be aware of the fact that their work history can have an impact on the cost of your business insurance.
Failure to fulfill past contracts may negatively affect you when you try to obtain insurance coverage. Insurers conduct extensive background checks on all applicants seeking coverage to minimize risk.
Incorporating your business is an important consideration for any business owner. By doing this, you will be removing personal liability. For example, if someone tries to sue your business, they will not be able to touch your personal assets.
Greater success = greater cost of insurance
Every company wants to make loads of money. But you should know that bringing in more money will greatly increase your insurance premiums. As more and more money comes in, there is a much higher risk of a lawsuit because you will be dealing with more customers.
Type of services offered
To keep the risks to a minimum, insurance companies always take the types of services you perform into consideration when determining your premium. If you employ workers who are considered to be in a “dangerous occupation,” you should expect to see a higher business insurance cost, because insurers are not going to take these risks lightly.
How to Lower Your Business Insurance Costs
- Bundle policies (BOP)
- Increase your deductible carefully
- Improve workplace safety
- Maintain a clean claims history
- Shop quotes annually
Finding the Best Insurance for Your Business
While premiums can vary based on many factors, being proactive by managing risks, reviewing your coverage regularly, and exploring ways to lower your exposure can make a meaningful difference over time.
Here at isure, we offer business insurance policies designed to protect business owners and their businesses. If you have any questions or concerns about the cost of your business insurance, contact us for a no-obligation, free commercial business insurance quote here.
Understanding how these deductibles work is essential for Ontario business Read more
Whether you own a small retail shop, a consulting firm, Read more
The world of business can be confusing to navigate. When Read more
