Factors Which Effect Your Business Liability Premium

Sometimes insureds can feel out of control regarding the insurance liability pricing.  Although there are some aspects that are out of an insured’s control, there are some matters which you can control and others that you can anticipate.  
Generally, most liability policies are going to be rated based upon the anticipated revenues during the policy period.  Some liability policies, usually for professionals, are based upon square footage.  The revenues are multiplied by a class rate.  The class rate is primarily based upon this particular carrier’s loss experience with your class of business.  This is out of control and is hard to anticipate.  Added to this rate are the estimated cost of producing one dollar of premium plus a margin for profit.  For instance a dance school with $250,000 of revenue would be charged a premium of $2,500 if the class rate was .10.  So, you can do a rough estimate of the next year’s liability premium by simply monitoring your increase in revenue and applying that same percentage increase to your premium.

You can also sometimes anticipate a change in the class rate.  For instance, if the carrier is reporting investment losses, you can anticipate that the margin for profit portion of the class rate will increase.  It is difficult to know when your class of business has not performed well with losses.  However, you may also see items in news or press releases that would indicate that there is an increase in cost and possibly an increase in class rate.  Examples of items that would indicate an increase in loss would be layoffs, entrance into new markets, and offering new services.

Keep in mind that carriers are not permitted to increase your class rate more than a certain percentage (different from state to state) unless they have given you the appropriate amount of notice.  Please note that insurance pricing is different for other lines of business so the above ideas should only be applied to your general liability policy and/or liability portion of your businessowner’s policy.