Understanding what impacts the price of insurnace
From the nature of your business and industry-specific risks to claims history and macroeconomic factors, there are several things that impact your insurance rates. By understanding these influential elements, you can make informed decisions to effectively manage your insurance costs moving forward.
Primary factors that affect your insurance premiums
- 01
How big is your company?
It may go without saying, but the size of your company plays a significant role in your insurance rates. For example, a small retail store will typically have lower insurance costs than a big box location, as the latter likely has more employees, property, revenue, inventory, and therefore, more risk.
- 02
Where are you located?
If you operate in an area that is more prone to natural disasters, crime, or other risks, your insurance premium may be higher. A software development company with office space on the Florida coast is at risk of being hit by a hurricane. A similar company located in Madison, WI has fewer risks of storm damage to property.
- 03
Are you in a risky industry?
The inherent industry exposures play a big role in your insurance rates. A construction company that builds skyscrapers will likely have higher insurance costs than a software development company due to the risk of accidents and injuries on a job site.
- 04
Is there a history or pattern of claims?
Carriers view your claims history as a predictor of future losses. For example, a larger single claim a few years ago, might not be as big of a deal as multiple smaller claims over the past few years. The latter indicates a pattern of losses, whereas the former may be seen as an anomaly.
- 05
Are there currently adverse macroeconomic factors?
The state of the economy, interest rates, and inflation can all affect the insurance market. Repairing property when construction inputs are elevated costs more. Additionally, if your industry is litigious and there have been significant recent legal settlements, that could also drive up rates.
- 06
Are you working with the right carrier?
Being with the right insurance carrier can lead to significant cost savings, as carriers often specialize in and are more comfortable with certain risks. This allows them to offer lower rates tailored to your specific needs. By partnering with an insurance carrier well-versed in your unique risk profile, you can get competitive pricing without compromising on comprehensive coverage.
- 07
Do you have any unique risks?
Unique risks, ranging from specialized equipment or property to events and vulnerable populations, can have an impact on insurance rates. Even if you're not operating in a high-risk industry, factors like annual public events or onsite employee perks could still lead to increased rates as they introduce additional elements of risk into your insurance profile.
- 08
How much risk can you retain?
The extent to which you bear the financial burden of a loss before the insurance carrier steps in, such as through a deductible, can impact your insurance rates. By being willing to self-insure and assume a portion of the risk, you align your incentives with the carrier, demonstrating a proactive approach to mitigating losses, which can result in lower insurance rates.
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