To get quotes or quick indications on the cost of business insurance: contact us. We are Google's # 1 Liability Risk Manager and a Top Operational Risk Advisor worldwide and contractually guarantee results including net cost for tailored coverage that we structure and trigger independently of any insurance broker or company for best value to business and investors. We would make insurance brokers compete against each other to lower cost all while rewording the insurance contract for better protection to the business instead of it benefiting insurers. We can also provide back-office analytics for a business to conduct its own negotiations with brokers and claims management.
The Cost of Business Insurance
The cost of business insurance is made up of the insurer's premium and the broker's commission, as well as counsel's fees for some products, and will vary greatly depending on the business insurance product as well as the business being insured, in addition to the underwriting cycle (cycle of higher insurer rates vs. lower rates). To simplify matters, it is useful to think of the cost of business insurance as a percentage of the limit of liability or limit of protection being quoted or insured. For example, 0.5% of the limit of insurance is a good guide and separator between different types of commercial insurance products (there are products that consistently cost over 0.5% of the limit of insurance versus other products that consistently cost less than 0.5% of the limit of insurance) - so if the limit is $1 million, then the cost would be $5,000.
Typically, a business in a low risk industry, with very low risk operational data and a clean claims history, and that is buying business insurance for which competition amongst insurers is high, can expect the cost of business insurance to be as low as 0.1% of the limit of insurance or lower, subject to a minimum premium. A minimum premium is the minimum cost an insurance company will accept regardless of the risk of the business. So if the minimum premium is $1,500 then that would be charged even if 0.1% of the limit of insurance is lower than such amount. Every insurer has its own calculation of minimum premium and typically minimum premiums decrease during periods of high competition amongst insurers.
Again, percentages of limits of insurance should be used as a rough guide when comparing the whole universe of business insurance products. The cost of business insurance can be vastly different from one product to another. For example, property insurance for standard risks will cost a lot less as a percentage of the limit of insurance than many liability business insurance.
High Cost of Business Insurance
During a hard market, which is a period when insurance companies increase rates, the cost of business insurance can increase substantially. At what point does business insurance become of no value given its cost? What is the mathematical cost/benefit of business insurance? These are some of the questions Management and Investors must ask themselves.
Reducing Cost of Business Insurance
There are several ways by which a business can lower the cost of its insurance while maintaining compliance with its contractual obligations, which includes looking for alternative protection solutions, making brokers and insurers compete against each other or conducting an insurance broker RFP, self-insuring, as well as making their own insurance more streamlined. Reducing the cost of business insurance, which can include minimizing premiums and broker commissions, is a science and would be best executed by insurance consultants or risk management consultants independent of any insurance broker, company, or lobbyist.
Cheap Business Insurance
The cheapest business insurance can very well lack the fundamental coverage required to either meet compliance or protection standards, which would defeat the purpose of buying the insurance in the first place. It is important to compare the fine print of the cheapest business insurance policy to other alternatives in order to figure out compliance with contractual obligations. It is also important to model the payout ratio of cheap business insurance versus the payout ratio of alternatives. For example, if the cheapest business insurance costs $1,000 and has a payout ratio of 10% on a $1 million limit of coverage, then its expected value is $100. If the alternative more expensive insurance costs $5,000 but has a payout ratio of 50% on a $1 million limit of coverage, then its expected value is $2,500. Conversely, expensive insurance can have no value, let's take the example of insurance that costs $5,000 but has a payout ratio of 0% then its value is $0.
Cost of Small Business Insurance
Small business insurance typically costs less than 0.5% of the limit of insurance subject to any minimum premium in place. This is due to the fact that the majority of small business represent less risk to insurance companies than larger business. With that said, if a small business belongs to a high risk industry and/or has challenging operational metrics and financials, then the premium will increase substantially. Keep in mind that the cost of small business insurance will vary greatly depending on the type of business insurance being purchased as well as the operational data around the small business, in addition to the underwriting cycle as discussed above.
For example, property insurance for a small e-commerce company will cost a lot less than property insurance for a restaurant with similar revenue amounts. Also, cyber insurance for that small e-commerce company will cost a lot more than its property insurance.