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Why is My Premium so High?

April 3, 2013

Occasionally business owners are surprised by the size of the premium proposed in their insurance quote. Such surprises tend to be more common with new business owners who have less experience running a business or who are unfamiliar with all the risks involved in their industry. While a good insurance agent can help you shop between carriers and find you the lowest available quote that still meets your coverage needs, even the lowest available quote may exceed your expectations. So, when should you expect to pay a higher premium?

There are a multitude of factors that go into the commercial insurance rating process. We would like to highlight just a few that are especially relevant to new business owners and that create the potential for high premium quotes.

Business and Owner History

Carriers tend to be more comfortable insuring long established businesses or owners with a history of experience in their industry. It is assumed that seasoned owners and businesses are more attuned to the risks involved in their field and are better equipped to take steps to manage these risks. Conversely, new businesses and inexperienced owners are something of an unknown. So insurers may seek higher premiums to compensate for the higher risk they take when insuring fledgling ventures.

Agents and carriers may want to know:

 Is the business a brand new entity without any prior history?
•  Is this the first time you have owned a business?
•  Is this the first time you have owned this type of business?
 How many years of experience do you have in this field or as a business owner?

Insurance History

An insurer can also get a sense of the risks involved in ensuring a business or doing business with an owner by looking at the business or owner’s insurance history. Businesses with a small claim history are more likely to be practicing safe and responsible procedures.  Business owners with an uneventful insurance history are more likely to be seen as safe and trustworthy individuals. These “safe” firms and individuals are likely to receive a lower premium. Businesses without prior insurance coverage (including new businesses) or existing businesses with gaps in their coverage history might face higher premiums because, again, they are something of an unknown to the insurer.

Agents and carriers may want to know:

 Is the business a new business seeking insurance for the first time?
•  Has the business filed any claims?
•  Is the business an existing business without prior insurance or with a lapse in coverage?

Type of Business

Lastly, insurance carriers simply consider some type of businesses riskier than others. Doctors aren’t the only ones who face stepped-up insurance premiums. Tattoo shops, home healthcare providers, chiropractors, restaurants, and night clubs are all examples of “higher risk” businesses. The latest trending businesses, those that are “outside-the-box,” such as a manufacturing microbrewery with a bar area, are also considered a higher risk. If a business doesn’t fit under any standard SIC code, it doesn’t fit into any standard underwriting classification.  This is why it is extremely important for owners to know their business’s Standard Industrial Classification (SIC) code, a 4-digit numerical codification system implemented by the U.S. government to identify the primary type of business for an establishment. Your SIC code helps insurers rate the risks inherent in your industry. Listing the wrong SIC code on an insurance application could result in confusion and an offer of misleadingly high or low premiums.

Agents and carriers may want to know:

•  What is the business’s primary SIC code?
•  What are the gross sales receipts for the SIC code?
•  What other sales contribute to the business’s gross sales receipts?

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