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Factors That May Affect Premium
Your insurance premiums are primarily affected by factors in two categories: Company specific and Industry specific.
Company specific factors are based on your individual business information to include your company’s physical location, your total years of experience in the specific industry, claims history over the past five years, the specific scope of work that your company performs, and many more.
Industry specific factors are calculated based on industry-wide claims history for factors such as claims history within a specific zip code or claims history for an entire business type.
- Physical Location/Zip Code: Some carriers may increase insurance costs or decline to quote the submission based on the applicant’s zip code. This declination is typically for areas that are at a higher risk for claims. Another reason that a carrier might decline to quote a submission in a specific zip code is that the carrier may have too many clients insured within a certain zip code which could prompt a higher loss ratio for that zip code. By closing that market to new business opportunities within the area, the carrier is able to lessen their potential risk exposure.
- Years of Experience: This factor can refer to an individual company’s years of experience in their field or to how new the specific industry type is and how much insurance and claims data has been collected for the industry. The more experienced a business has typically results in less claims being filed. For newer industry types, such as a Marijuana Dispensary, the carriers may not have enough data on the industry as a whole to properly calculate premiums based on industry wide claims history, which can result in higher premiums. This is because the carriers need to mitigate their potential risks as premiums are determined to charge according to potential future claims payouts.
- Business Classification Type: Some businesses are at a higher risk for claims due to the daily operations performed within their company. For example, roofers are typically higher risk companies as opposed to interior painters. Roofing operations are subject to risk for falls, claims regarding damage to the roof itself, and roof leaks which may cause further damage to the interior of a dwelling. These examples would all lead to high claims payouts for the insurance company. On the other hand, an interior painter may have a claim for overspray, if they do not prepare the area correctly prior to painting, which are typically lower claims payouts than a claim related to a roofing incident.
- Specific operations within a Business Classification: Continuing off of the previous example, interior painters can be charged less premium than exterior painters even though they are both painting companies. Interior painters are exposed to less potential hazards that will result in a claim than exterior painters. Exterior painters are at a greater risk of fall claims than an interior painter would be.
- Height of Work Performed: Companies that perform operations at heights above ground level have risks for fall claims and the higher the height, the worse the claim generally is. Based on industry wide data, many carriers have found that there are still fall claims occurring frequently even though there are guidelines in place for specific safety practices to be used by employers. Height exposures not only increase insurance premiums, but most carriers will decline to quote the risk if work is performed at heights over three stories.
Factors that may reduce insurance premiums
There are several factors that may reduce or keep your insurance premiums lower. Some of these factors include:
Preventative claims maintenance
- Providing personal protective equipment to employees
- Creating a safety manual
- Daily or weekly safety meetings with employees
- Hiring a safety manager to oversee job sites and review safety procedures with employees on a regular basis.
Written Contracts and Retention of Documents
Many contractors understand that they should have a signed contract between themselves and their customers, however, a contract that is frequently overlooked is the contract between the general contractor and their subcontractor(s). This is called a subcontract agreement and should be in force for every project that a subcontractor works on. The agreement details the insurance coverage the general contractor requires the subcontractor to carry while working for them, which is equal to or higher than the general contractor’s insurance limits. The subcontract agreement also includes “hold harmless” verbiage that releases liability of the general contractor from any claims that arise from the subcontractors work. Without these contracts in place, general contractors can be held accountable for claims from a subcontractor’s work and those claims would be reflected on the general contractor’s loss history. The claim, although not specifically caused by the general contractor’s work, will increase the general contractor’s premiums for the following five years.
General contractors should also be obtaining certificates of insurance from each of their subcontractors showing that the subcontractor has active General Liability and Workers Compensation coverage, at the very minimum. The general contractor should also be listed as an “additional insured” on the certificate of insurance which will allow the general contractor to file a claim with the subcontractor’s insurance carrier directly.
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