What Influences Your Business Insurance Premiums?

What Influences Your Business Insurance Premiums?

Business insurance cover is essential for every Australian-owned company to operate soundly.

Insurance premiums often rise and fall. So, why does this happen?

Should you opt for the lowest insurance premium you can find, or does a higher premium, mean you have better insurance coverage?  

These are a couple of the questions, Australian business owners ask about their business insurance coverage. 

Here we will cover five key factors that can influence the varying costs, and if you can do anything to lower them.

What Influences Your Business Insurance Premiums?
 
What is the Risk?

One of the first factors that an insurer considers when a business owner asks for insurance cover, is the risk of paying for a claim. 

For example, for comprehensive car insurance, the insurer will ask whether the car is kept in a garage, carport or on the road. They will also consider the type of car, the driver’s age and driving history, and the owner’s residential location. 

Its a similar process for business owners. The insurer will ask where the business is located, the type of security used on the premises, and the business owner’s age and history in the industry. 

These factors can increase or decrease the risk to an insurer of paying a claim. 

What is the Coverage? 

The amount of risk the insurer takes by issuing a business insurance policy will affect the type of coverage offered.

If the risk is too high, they may refuse to issue a business insurance policy or set the premiums and excess payments high enough to offset this risk. 

In general, the higher the coverage, the higher the premiums. However, this doesn’t always apply. So, it’s best to talk to an experienced insurance adviser about your coverage and premium options. 

What is the Replacement Value? 

Insurers use a base value for the replacement costs, which might be utterly different to your idea of how much it will cost to replace or restore your business. 

You can often insure your property for either a predetermined value or its market value. Each option generally has a different premium, depending on the risk to the insurer. 

Market Factors 

Storm and flood damage isn’t the only market factor that can affect your business insurance premiums. Inflation is another significant factor in the cost of business insurance premiums, as are

  • Increased government taxes or state or territory duties or levies. 
  • The number of claims made in that sector of the insurance industry. For example, suppose there has been an unusually high number of claims due to a natural disaster. In that case, some insurers may need to increase premiums to restore the balance between the pool of funds available to pay claims and the risk. 
  • Regional or global market changes in the insurance industry. 
  • The value or quantity of what you are insuring. If the value of your business has increased, then your premiums will increase as well to offset the risk. 
  • The insurer’s cost of doing business. 

Prior Claims Record 

Another common factor that influences your business insurance premiums is your past claims history, if you have one. 

If your business has filed several insurance claims in the past five years, it’s likely you’ll be paying higher insurance premiums. This is because the more claims you file against your business, the riskier your business is perceived. 

Therefore, insurers will increase your business insurance premiums based on that risk.  

So, Why do Premiums Increase in the First Place?

The most common reason that insurance premiums increase is that the insurer needs to have the money to pay the claims submitted throughout the year. 

If their costs of doing business increase, they will increase everyone’s premiums to make up for the shortfall. However, your individual premiums may rise or fall because of changes to your personal circumstances, so it’s essential to keep your insurer updated on any changes that might affect your business insurance premiums and claims. 

What Influences Your Business Insurance Premiums?
 
Can You Reduce Your Premiums? 

As mentioned above, your business insurance premiums may be reduced based on your personal circumstances, but there are other ways to manage the cost of your premiums.


1.    Increase your excess 

One way to reduce the amount of premium you pay on your business insurance is to agree to take on a certain proportion of the risk by increasing your excess. 

Many insurance policies allow you to specify an excess. In general, a higher excess will mean you pay a lower premium. 


2.    Lower your risk 

Many insurers will offer you a cheaper premium on your business insurance if you take steps to lower your risk. 

For example, you may receive a discount on your business insurance if you have security devices in place, such as security cameras, window locks and deadlocked doors. 


3.    Talk to your insurer

Providing additional information to your insurance adviser about your specific risk may also allow your premium price to be reviewed. You can also ask your insurance adviser about how you might be able to lower your premium price. 


4.    Ask for discounts 

Talk to your insurance adviser and ask if you qualify for any discounts. Some insurers may offer discounts, such as a no claims or multi-policy discount if you have two or more policies with one insurance company. 


5.    Pay your premium annually 

If you pay your premium in instalments, it generally costs you more than if you choose to pay your premium in one annual lump sum. 


Talk to an Insurance Adviser About Your Premiums 

If your business insurance premiums have recently increased and you’re unsure why, or you’d like to reduce the cost of your premiums, speak to an insurance adviser. 

An insurance adviser can provide you with all the information you need about business insurance premiums and help you get a better premium for your business insurance. 

Find your nearest insurance adviser and get the best premium for your business insurance coverage. 


Important Information 
This communication including any weblinks or attachments is for information purposes only. It is not a recommendation or opinion, your personal or individual objectives, financial situation or needs have not been taken into account. This communication is not intended to constitute personal advice.
We strongly recommend that you consider the suitability of this information, in respect of your own personal objectives, financial situation and needs before acting on it. This document is also not a Product Disclosure Statement (PDS) or a policy wording, nor is it a summary of a particular product’s features or terms of any insurance product. If you are interested in discussing this information or acquiring an insurance product, you should contact your insurance adviser to obtain and carefully consider any relevant PDS or policy wording before deciding whether to purchase any insurance product.
 

SME Business Insurance Pack

SME Business Insurance Pack

Business Insurance is used by many businesses, but it’s best suited to SME-type operators.

How SMEs can prepare for potential rising premiums

June 18, 2020

Five Factors that affect your insurance premiums

July 29, 2018

Understanding why insurance premiums are rising and how to mitigate your business risks

August 26, 2021

Find your local Insurance Adviser

Talk to your local Adviser to get advice about your insurance needs and to get a quote