The business insurance premium has two basic components that help to determine what you as the small business owner will pay for insurance coverage for your business:
Component 1: A business insurance rate is a basic component that reflects the loss costs and expenses for a specific type of business operation.
Component 2: The exposure unit, which is the other premium component, will be a measure reflecting the probability of loss based on the type of business operation.
Examples of exposure units would by payroll, revenue, cost, area, units to name a few. By multiplying the rate by the total number of exposure units we can determine a premium for a type of insurance coverage such as property, auto, general liability, workers compensation and many others.
After the premium is calculated certain discounts may apply based on the specific characteristics of the business to be insured. Favorable features of the risk such as building age (not too old), loss history, age of vehicles, condition and maintenance of buildings and premises or safety programs for employees may earn a premium discount. Conversely unfavorable characteristics my require premium surcharges.
Business insurance rates and premiums charged by insurance companies are strictly regulated by state insurance departments in all 50 states. Business insurance rate regulation has three general objectives:
- To ensure that rates are adequate
- To ensure that rates are not excessive
- To ensure that rates are not unfairly discriminatory
Further some states require prior approval of business insurance rates, some have state mandated rates and others allow open competition and monitor the use of rates by the companies.
It is this regulation along with healthy competition among insurance carriers that ensures that you will be able to purchase the best business insurance coverage for your business at a fair price.