What affects the price of my business insurance policy?

4 min read | Published 09/07/2024

Business insurance pricing can be tricky to understand. We explain which factors can push up premium prices and how to keep your costs down.

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The cost of your premiums depends on how risky your insurer thinks your business is.

The cost of a business insurance policy can vary for many reasons. That’s why it pays to shop around and compare policies from different providers. That way, you can be confident you’re getting the best deal.

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Factors that affect business insurance 

Insurance providers consider various factors when calculating your business insurance premium. The amount of risk involved figures prominently in this: the greater the risk, the more you pay. 

Factors that insurers look at include:

1. Cover limits and types

The amount of coverage you purchase can affect the price of your insurance. The higher the cover limit, the more you are likely to pay. But it also means you have more comprehensive protection if something goes wrong.

The type of cover you buy can also affect premiums. Generally, insurance that covers risks such as property damage or business interruption should be cheaper than cover for third-party liabilities. This can include public liability insurance or professional indemnity insurance.  

2. Business size

Insurers look at the size of your business and your annual revenue. The larger your company and the higher your revenue, the more there is to lose. You’re likely to pay more for your insurance as a result.

3. Headcount

Similarly, the more employees you have, the greater the risk, which means you’ll pay more for cover. 

Your premiums might also vary depending on the risk associated with where your employees work. For example, you are likely to pay more for workers on a construction site than those working from home.

4. Claims history

If you’ve made business insurance claims in the past, this can suggest you’re likely to make more claims in the future. Your insurance provider usually charges you higher premiums to cover this increased risk.

5. Industry

Insurers view some industries as riskier than others. Activities involving dangerous substances or heavy machinery may be seen as more hazardous than those in a clerical setting. Your insurance costs increase as a result.

An office-based bookkeeping business, on the other hand, might pay lower premiums. 

6. Experience

A well-established business is a lower risk in the eyes of an insurer. If you have been in business for a while, you should pay less for your premiums.

By contrast, if you’ve recently set up your company and have limited business experience, the price of your business insurance could be higher.

7. Location

If your business is located near water, there might be a higher risk of flooding. Or, if there’s a high crime rate in your area, your business could be more susceptible to vandalism or theft. Again, this increased risk can make your insurance premiums more expensive. 

8. Excess

The excess is the amount you need to pay towards the cost of an insurance claim. Choosing a higher voluntary excess can reduce the cost of your premiums. But it also means you need to pay more if you make a claim.

9. Tax rates

The standard rate of Insurance Premium Tax (IPT) is 12% for all businesses. But if this rate rises, your premium could also go up.

10. Inflation 

When inflation rises, the costs of goods and services go up. If you make a claim, the insurer has to pay out more, so your premiums are likewise more expensive.

Compare business insurance

How can I reduce the price of my business insurance policy?

You can lower the cost of your business insurance premiums in several ways. But it’s essential to check that this doesn’t leave you underinsured. Without sufficient cover, you could lose out financially if you need to make a claim. 

Shop around at renewal

Avoid letting your business insurance renew automatically. Shopping around and comparing quotes from a range of providers each year is key to finding the right level of cover at the best price.

Use an insurance broker

Speaking to an insurance broker can help you find the right insurance policy for your business. A broker works on your behalf and can compare quotes from lots of insurance providers to find the best coverage. 

Demonstrate your business is well run

You may pay less for your insurance if you show that your business is well run. You can do this by carrying out risk assessments, filing your accounts on time, and offering ongoing staff training.

Increase your excess

Choosing a higher voluntary excess often lowers your premiums. However, it’s essential to check your excess would still be affordable if you made a claim. 

Bundle your insurance

Some insurance providers let you combine different business insurance policies into one package policy. This type of umbrella policy makes your insurance more manageable and could save you money on your premiums.

Frequently asked questions

What does my business insurance premium go towards?

Insurers use the money you pay them for:

  • Claims payouts: A portion of your premium will go towards paying claims.

  • Expenses: Some of your premium also goes towards the insurer’s costs. These include employee salaries and office expenses.

  • Insurance Premium Tax: Insurers add IPT to your premium.

  • Insurer’s profit: Insurers need to make a profit from the money you pay them. 

How much should I pay for business insurance?

There’s no fixed answer when it comes to how much you should pay for your business insurance. Instead, you need to look for the right level of cover for your business and then aim to get it at the best price.

About Alex Ryde

Alex joined in 2019, bringing his expertise to a range of roles working in both the Analytics and Commercial teams. More recently he has stepped across to focus on Product, where he’s been focusing on scaling up the teams’ SME offering.

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