Insurance prices can vary when it comes to small, medium and large businesses. There are several factors that can affect the overall cost of commercial insurance—the size of your business is only one condition. It’s important for all business owners to be aware of what can cause these rates to fluctuate, and what exactly they can do about it. In this article, we’ve outlined the five main factors that affect the cost of business insurance, as well as other contributing factors you should be aware of.
What is business/commercial insurance?
Essentially, the term “business” or “commercial” insurance refers to an insurance policy and coverage types for all businesses. Commercial insurance is crucial in protecting your business from potential loss caused by unforeseen and unfortunate circumstances. Business insurance provides financial coverage should a claim be filed against you. Also, you have coverage if your business assets are damaged or stolen. It’s made up of a bundle of separate insurance products, and your coverage is customized to fit your business model and needs. In order 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.
Key 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
- Cybers Liability insurance
The culmination of these coverages prevents major losses when a lawsuit threatens your company or if you find your business belongings, such as equipment or furniture, lost, stolen, damaged, or destroyed.
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. Why such a large variance? It’s such a big range due to a number of diverse factors determining your insurance premium. The five main factors that affect the cost of business insurance include:
- Potential risk
- Claims history
- Number of employees
- Annual income
- Business location
Certain industries are naturally at a much higher risk than others, so risk is a big factor for business insurance. For example, construction companies are much more likely to be at risk of a visitor filing a lawsuit against them due to site injury rather than a retail business or office corporation. The riskier your business is to insure; the higher coverage costs will likely be. Fortunately, smaller businesses or businesses with lower risk will benefit from more affordable rates.
How risk affects your insurance costs
When determining how much commercial insurance will cost for your business, it is important to take into account the level of risk you carry. The greater the risk, the higher your premiums will be. Let’s breakdown some different types of business with the risks associated with the industry to determine how high their premiums can be:
- Small risk company: Home-based companies and consultants.
- Risk factors: Data breaches, Professional errors, inventory loss, unpredictable income.
- Average insurance costs: $
- Moderate risk company: Accountants, retailers, web developers, media companies, IT.
- Risk factors: Data breaches, professional errors, employees, renting, high risk tenants.
- Average annual costs: $$
- High risk company: Construction, demolition, mining.
- Risk factors: Employees, accidents, property damage, international transit or import issues, commercial vehicles.
- Average insurance costs: $$$
To learn more about 5 essential types of start-up business insurance, please click here.
Your business insurance claims history affects future rates. Whether they are frivolous or genuine, business insurance claims can be very damaging for any type of business over a long period of time. One of the first things your insurer will request when you submit your application for business insurance is a background check, including claims history. 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. This is because the more claims you file, the riskier your business is perceived. Insurance companies view a high-claims history as a risk to them, which is why it is more expensive for certain businesses to obtain affordable coverage rates.
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.” Anyone who provides a service requires E&O insurance. It protects companies, owners and employees against legal liability for claims of financial loss, bodily injury and/or property damage arising from mistakes or negligence on the part of those who offer professional services and advice.
Number of employees
Professional Liability Insurance and General Liability Insurance are most commonly affected by the number of employees at a business. Some insurers will use the number of employees you have as a measure of how big your business, and therefore, the amount of risk involved.
One of the largest contributors to the cost of commercial insurance is annual revenue. The more lucrative and successful a business is, it will have more to protect in the event that something threatens the company. High sales also means you likely have more customers and more risk exposure. For this reason, the higher the yearly income of the business, the higher the insurance premiums will likely be.
On average, commercial insurance for a small business costs Ontario companies between $500 and $5,000 annually.
The location of your commercial business plays a significant role in your business insurance rates. For instance, if your company is located somewhere that is more prone to extreme weather conditions (such as tornadoes, floods or severe snowstorms,) then your business is potentially at a higher risk of structural damage. As a result, insurance companies may only be able to offer higher insurance rates. Additionally, a business that is located in a high-crime area will be subject to more expensive insurance premiums because it is at risk of theft or vandalism.
Other factors to consider
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. Deductibles are the way in which a risk is shared between you (the policyholder) and your insurer (the policy issuer).
If you are a business owner, it almost seems desirable to go with a higher deductible, because it allows your insurer to reduce the cost of their policy. However, this can be a major mistake if you have a high potential for risk. In the event that an accident does occur, it means that you are going to be required to pay a lot more money out of pocket. Be sure you speak with one of our isure brokers to thoroughly weigh your options and risk factors before deciding on what type of deductible you want to go with.
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. For instance, if you have previous contracts with 30 different customers, your premium is going to be much higher than if you only have contracts with 10 customers. 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 impact you negatively when you try to obtain insurance coverage. Insurers perform an extensive business background check on all applicants applying for coverage to keep their risk to a minimum.
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 is going to greatly increase your insurance premiums. As more and more money is coming in, this means that there is a much higher risk for 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. Electricians, stunt professionals, firefighters, and security guards (to name a few), are all classified as ‘dangerous jobs’. If you employ these types of workers, you should expect to see a higher premium, because insurers are not going to take these risks lightly.
isure finds business insurance policies designed to ensure the protection of business owners, as well as their business! We are customer-solution based and committed to understanding your business to find coverage solutions that work for your needs. Contact us for a no-obligation, free commercial business insurance quote here.