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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 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. 

Management Liability insurance is designed to provide protection to both the business and its directors or officers for claims of wrongful acts in the management of the business.

A business insurance pack can provide cover for your business premises and contents, against loss, damage, theft or financial loss from an insured interruption to the business.

Purchase up to six products under one Business Insurance Package. 

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. 
 
 
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. 
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.


Insurance Advisernet, ABN 15 003 886 687, AFSL 240549

This article originally appeared on Insurance Advisernet News and has been published here with permission.

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