Many business owner’s wonder what goes in to the amount they pay for General Liability Insurance for small business. Frequently business owners compare their costs with fellow business owners or friends and family who run other businesses. Some business owners in certain industries may be shocked to find out how much more they pay than other businesses. Every state and every insurance company determines rates differently for General Liability Insurance. There is not one formal way insurance companies go about creating a formula to determine rates, but there are three main factors that weigh heavily on what you pay for General Liability Coverage: The size, the class code and the loss history of your business.
The size of your business
For most businesses this is the physical dimensions of your business property multiplied by a number determined by your class code. Also taken into consideration is the condition and age of your property. Insurers examine the age of the construction and whether the building is up to code. Generally, newer construction lowers your rates, while older construction tends to raise the rate paid for General Liability Insurance.
General Liability class codes you are in determines the risk of your industry. For this factor it is crucially important to be honest with your agent about what your business does and does not do on a daily basis. You can understand the differences in risk from a dentist office compared to a construction business; or even an accounting firm compared to a commercial fishing business. Even small differences in a business can have an effect on your class code.
Take for instance commercial versus residential cleaning businesses. Commercial cleaning businesses typically have employees who drive to one location, clean the building and go home. A residential cleaning business typically has employees who are going to more than one residence throughout the day. These employees are driving to and from each residence. While driving between locations, the business is liable for any accidents that occur. This elevates the risk for covering this business and will in turn cost more. This is why it is very important for you to speak long and honestly with your agent in order to be placed in the proper class code.
The final factor that determines your rate is your businesses loss history. This again depends upon the industry. For some industries it is common to have many small incidents. A restaurant would be a good example. Because there are so many people coming in and out of the restaurant frequently, slips and falls are common. If your business tends to have a larger amount or more dangerous incidents it may cause your rate to go up. Another thing to consider if you have had some claims in the recent past is what type of formal safety program does your business have in place. If you have a well documented safety program in place, your agent may be able to explain some incidents as freak occurrences and not a sign of an underlying problem that makes your business more of a risk.
There are several other factors that go in to what you pay for your General Liability Insurance Policy, but the size of your business, your class code and your loss history are the main factors that determine what you pay. Staying on top of these three factors can go a long way towards preventing your business from paying too much for General Liability Insurance.