Ways to lower your business insurance costs

The surest ways to lower business insurance costs are to make sure you’re priced on accurate facts, to choose limits and deductibles that fit your business, and to have fewer and smaller claims over time. A few of those steps pay off at once, like moving a clerical employee out of a construction class or raising a deductible you can easily afford, while others, like a safety program, pay off over several renewals as your record improves.

What doesn’t work is shading the facts. Lowballing payroll, leaving out part of what you do, calling employees contractors or dropping below the limits your contracts require all tend to cost more later, at audit, at claim time or when a client rejects your certificate.

Start by fixing the facts on your policy

Before you shop, haggle or raise a deductible, read your own policy, because the cheapest saving, when there is one, is an error that’s already on it. Your classification is the starting point for every rate you’re charged, and California’s Department of Insurance calls it “the first step to determine premium,” so a business described too broadly, or put in a class for work it stopped doing two years ago, is paying for that mistake on every line.

Workers’ comp is where this shows up most. Maine’s Bureau of Insurance explains that a business is normally classified as a whole, but that some jobs common to nearly every business, such as clerical office staff, outside salespeople and drivers, can be rated in their own standard exception classes, and that contractors can have trades such as carpentry and roofing rated separately if payroll is tracked for each. A contractor’s office manager who never visits a job site is the classic example: if that payroll sits in the construction class, it’s being charged a construction rate. Check each code on your policy against the work the people in it actually do.

Then check the numbers. California’s Department of Insurance notes that correcting payroll estimates during the policy term can help avoid a large audit bill, and Maine says the extra pay for overtime is left out of the premium calculation if your records show it separately by employee and class, so an accurate estimate and clean records together can lower the final bill and keep it from arriving as a lump. Errors at audit can also run in your favor. If an auditor put payroll in the wrong class or counted a subcontractor who was insured, catching it can produce a refund, and what a premium audit is, and how to prepare covers what to check.

Last, update the description when the business changes. If you’ve stopped offering a riskier service, tell your insurer so you stop paying for it, and if you’ve added one, tell them too, so a claim from that work isn’t disputed.

What backfires

The common instinct, when a renewal comes in high, is to make the business look smaller or safer on paper. It’s the most expensive mistake on this page. Payroll that’s under-reported gets caught at audit, work that’s left out of the description can turn a claim into an argument, and employees relabeled as independent contractors can end up back on your payroll with an audit bill attached.

The same goes for limits. Dropping below what your lease or a general contractor requires saves money until the first certificate gets rejected, which usually happens just before a job you wanted.

The other version of this mistake happens at shopping time, when owners take the cheapest quote without lining it up against the others the way how much business insurance costs describes. A quote that’s cheaper because it carries a lower limit, a later retroactive date on professional liability or no additional insured endorsement for your landlord buys less coverage, and the gap tends to show up at the worst moment: when a certificate gets sent back, or when a claim about last year’s work arrives and the new policy doesn’t reach that far. Compare quotes line by line before treating any of them as the cheap one.

Limits and deductibles you can change this week

These are the parts of the price you choose directly, but they’re also the easiest to overdo in either direction.

• Limits. Meet the highest requirement in your lease and contracts, then ask whether a serious claim could go past it. Don’t buy far more than your contracts and risks call for, and don’t buy less than they require. How to choose liability limits walks through it.
• Deductibles. The NAIC says “higher deductibles typically equate to lower premiums,” and California’s guide adds a warning against deductibles so large they put the business at risk. Choose the highest one you could pay from cash, more than once a year if claims are likely. How to choose a deductible shows how to weigh it.
• Waiting periods. On business income coverage, a longer waiting period works like a higher deductible.

If you’re carrying a high limit only because one client asked for it years ago, and that contract has ended, that’s worth a look. With Corgi, limits can be raised the same day if a new contract asks for more.

How prevention feeds into your price

Here’s how a safer business turns into a cheaper policy, step by step. The NAIC’s small business guide starts from the basic point that premiums are based on risk, and adds that businesses with solid, documented safety practices “may be assessed lower risk and charged lower premiums.” That can happen at your next renewal, through the credits underwriters apply for specific traits of a business and the lower rate levels some insurers keep for safer employers, and it happens slowly as a cleaner record replaces older years, which for workers’ comp NCCI ties directly to your chances of earning a credit on your experience mod.

The federal government makes the same connection. The Occupational Safety and Health Administration lists “significant reductions in workers’ compensation premiums” among the benefits of workplace safety and health programs.

What that looks like depends on the business.

The NAIC’s own tips cover similar ground: good lighting, sprinklers and alarms, security devices, keeping only a small amount of cash on site, and training employees to lift properly and use safety equipment. Whatever you do, write it down, because a documented practice is one an underwriter can give you credit for.

Should you pay small claims yourself?

For employee injuries, no. Report them promptly. California’s guide is blunt that handling a claim yourself violates your duties under the insurance contract and can be costly in the long run, and NCCI’s plan, in the states that have approved it, counts medical-only claims at a fraction of their value in the experience mod, so there’s little reason to hide them.

Even once a claim is open, though, how it’s handled affects what it ends up costing. Maine recommends return-to-work programs and light-duty or part-time assignments for injured employees where possible, and NCCI notes that an employer’s involvement can reduce the severity of a loss after it happens. Ask for your loss runsLoss runA loss run is a report from your insurer listing the claims filed under your policies over a set period, with dates, amounts paid and whether each is still open.Read the definition at least once a year, as Maine suggests, and check that closed claims are recorded as closed; what loss runs are explains how. With Corgi, one claims specialist handles your claim from the first call until it’s closed.

Small property losses are different, however. A higher deductible means most small property losses never become claims at all, which is a cleaner way to absorb them than deciding claim by claim, though you should still report anything your policy requires you to report.

Collect certificates from subcontractors

If you hire subcontractors, collect and confirm a certificate of insurance (COI)Certificate of insuranceA certificate of insurance (COI) is a one-page summary that proves your business has insurance, listing your policies, limits, insurers and policy dates.Read the definition from each one before work starts, because Maine’s Bureau of Insurance warns that without proof of a contractor’s coverage, an insurer might treat the contractor’s employees as yours and count their payroll in your premium. How to collect and check certificates from your subcontractors has a checklist, and what a premium audit is shows the bill that follows when the step gets skipped. The step itself costs nothing.

Review your coverage at every renewal

Your business changes from year to year, but policies tend to renew exactly as they were unless someone reads them. The NAIC suggests reviewing all insurance policies annually and noting any changes that may affect your coverage costs, and reading policy terms carefully so you’re not paying for double coverage. At renewal, check:

1. Payroll, revenue and property values against the past year
2. Equipment you’ve sold or stopped using, and tools that no longer need coverage
3. Locations you’ve closed or opened
4. Contract requirements that have changed
5. How you pay, since installment plans may carry fees

If the renewal still looks high after that, your business insurance renewal went up explains what to ask first, and a quote for the same coverage shows you whether the increase is about the market or about your policy.