As an insurance broker, one of the most common questions we get asked is, “How much does business insurance cost?”. It is a simple question, but the answer is sometimes complex. Many times when someone tries to explain it, they simply make things more confusing. This is simply because there are so many variables at play before you can determine a price. We will walk you through the steps it takes to get to the price of business insurance.
Find an insurance broker
The key to getting the best pricing in the insurance world is to find someone who will best represent you in the marketplace as your insurance broker. This person knows your story and is good at follow-through. It’s also someone who tells you what you need to hear, not what you want to hear. The best insurance brokers are true advisors and consultants.
How do I find a good insurance broker?
There’s a multitude of different avenues you can go down to find an insurance broker. What we see most is business leaders asking their peers, asking past employers or employees who they use, and also by word of mouth. A good way to find a broker that is a good match for your company is to look at their client list.
After you’ve done that, find out who is actually doing the work for those clients. You want an insurance broker who is extremely involved in the day-to-day dealings with your company. Someone who is familiar with your company and story because they regularly work with you. It’s a kind of brand equity – finding out the companies that a service provider works for.
How insurance pricing works
When an insurance company is pricing a company’s insurance coverage, they go through a few steps. First, they look at exposure. Second, they classify that exposure. Third, they determine what the rate would be. This process determines the cost of business insurance.
How do I get the lowest rate?
Obviously the lower the rate the better it is for the buyer or “insured”. You want to drive that rate down, but it is usually based on some exposure basis. For example, if we’re talking about property insurance it could be the property values. If you’re talking about liability insurance, oftentimes it’s the estimated revenue for the company. If it’s worker’s compensation, then it’s payroll. All of these elements play a role in determining the cost.
The better risk profile you have the lower the rate you pay. The key is that you’re properly classified so you can get the best rate in the marketplace. It is the broker’s responsibility to describe and share your business story in the best light possible to get the best rate possible. Helping educate the underwriters about your company and why it has a low-risk profile is the job for the broker. Businesses that are understood best get the best rates because the underwriters don’t price in “unknowns”. Underwriters that know your company best are willing to give you their rock-bottom rates because they have a high comfort level with the risk. Companies that have more exposure pay more premium. Companies that do their best to mitigate risks and surprises are rewarded with the best rates.
How does my broker influence the cost?
Insurance brokers are used to answering the question, “How much does business insurance cost?”. A good broker and advisor can influence the cost of insurance by helping you tell your story in the most-favorable, yet truthful light possible. You can educate and position a company and help an underwriter understand what the true risk profile is. That can help a great deal in making sure you get the best pricing available in the insurance market.
Pricing in a hard market
The insurance market in general is either a soft or hard market. It is basic supply and demand. Currently, in 2020, we are experiencing a hard market meaning demand is high and supply is low. This means that the general cost of insurance is more expensive than it otherwise would be. This is largely due to an increasing number of claims, higher payouts on those claims, and insurance companies in general feeling like they need to increase rate across the board because of current trends in the market.
During a hard market, it is difficult to drive rate, but the goal is to outperform the market by getting the best pricing and the best coverage terms available. You can do this by having a broker that understands your industry and understands the marketplace.
Constantly changing market
One thing is certain – business insurance pricing is constantly changing. That’s why the Small Business Administration suggests re-assessing your insurance needs every year. As your business grows, so do your liabilities. If you have purchased or replaced equipment or expanded operations, you should contact your insurance broker to discuss changes in your business and how they affect your coverage. That’s why it’s imperative you have a qualified insurance broker on your side. They will be able to get you the best rates and pricing, with the broadest coverage terms and most consumer-friendly policy possible.
If you would like to find out more about Diversified Insurance Group, or you have questions about business insurance pricing, go here.