Embroker Team March 25, 2024 4 min read

How Much Does Business Insurance Cost?

Man presenting list detailing business insurance cost

In a recent blog post, we discussed why businesses need insurance. Obviously, depending on the type of business you run and the size of your organization, your insurance needs will vary. It should also be made clear that not every business needs to buy every type of insurance.

This means that while every business should purchase some type of necessary coverage, it’s hard to say which coverage and how much will business insurance cost without taking a detailed look into the company’s various characteristics. 

Once business owners realize they need to purchase business insurance, the next two questions tend to be, “What policies do I need, and how much will business insurance cost?”

The question of what coverage your business needs is complex, as discussed in a separate blog post. Regardless of what policies you buy, insurers will consider certain things when calculating your premiums.

Let’s examine closely what business characteristics are considered when determining your insurance rates and overall business insurance costs.

Not All Insurance Types Cost the Same

We’ve already confirmed that the types of policies you need depend on the type of business that you run. This will also inevitably influence your business insurance costs as well because all policy types are priced differently.

For example, general liability insurance is one of the staple insurance policies that basically every business should have in place. It protects your company from claims related to third-party bodily injuries and damages and other general liabilities. Since it’s a very general policy that every business should own, it makes sense that it’s also one of the cheaper policies to buy.

In fact, three of the most common types of business insurance—general liability, commercial property, and business interruption insurance—are often bundled and sold as a Business Owners Policy (BOP), which costs less than buying these three coverages separately.

The takeaway from this is a relatively simple one—the more specialized the policy is and the more specific the risks it protects against, the more your business insurance costs.

What Factors Influence Business Insurance Costs Most?

So, what’s the answer? How much does business insurance cost? Well, it’s not a simple answer. First, you need to determine which policies you need to buy. Then, a whole set of factors will be taken into consideration when calculating the premiums you will have to pay to secure coverage.

So, what factors determine your premium? There are a bunch of them. For starters, insurers will look at the industry in which you work and the type of business you run.

For example, if you run a restaurant, you’re going to have to pay significantly more for commercial property and workers compensation insurance than a company that’s involved in software development. Why? Because the risks that your property and employees are exposed to in the hospitality industry are greater than the risks related to working in the office of a technology company.

Conversely, when purchasing insurance for your tech startup, you’re going to have to pay significantly more than a restaurant (which might not even need these policies) for tech errors & omissions insurance and cyber liability insurance, for example.

Pie graph and bar chart for 2022 benchmark report

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The location of your business is another very important factor. If your business is located in an area that is prone to earthquakes, wildfires, and flooding, for example, you’ll be paying a lot more for most policy types than a business that is located in a low-risk area. Companies situated in larger cities also pay more for insurance than companies with suburban or rural locations, for the most part.

Your claims history is also an important factor that’s taken into account. Obviously, the more claims filed against your company, the riskier you are to insure.

There are even specialized aspects of your business that are taken into consideration when determining premiums for specific policies. For example, your payroll will be an important factor in the calculation of your workers comp premium and your property value will be an essential factor in determining your commercial property insurance premium.

Insurers also have general liability class codes that they use to group businesses according to risk level and calculate premiums.

With all of these insurable risks that your company needs coverage for—the ones mentioned and the many others that exist— each risk factor has a cost associated with it, business insurance costs that were determined through studies, analytics, and looking at historical data. Insurers use these formulas to come up with a number, after which they make sure that a profit margin is added to the equation, and that’s basically how you get your premium.

If you’re looking to get the best and most complete coverage possible for the lowest possible price, your best bet is to team up with an experienced broker who has specific interests and experience insuring companies in your industry. You can reach out to one of our experienced brokers at any time to discuss your insurance options and put together an insurance program that gives you the best possible balance of protection and value.

To learn more about the best coverage for your business, check out Embroker’s digital insurance platform.

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