Finding Affordable Business Insurance In 6 Simple Steps
Insurance is an important product for nearly every business in the United States. Many of your customers outright require you to have it, but that’s just the beginning. You’ll also need it to secure loans, find investors, and work with many vendors.
It is always smart to do your due diligence and make sure you are getting affordable business insurance that protects you.
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With that in mind, here are six tips for finding cheap business insurance quotes:
1) Begin the quote process early.
An overlooked (but critical) part of getting a good deal on your business insurance is having enough time to negotiate said deal.
Yes, there are some options out there for small businesses that just want a quick and easy quote. But most of the time, they don’t end up receiving the best low-cost business insurance available.
In many cases, you end up sacrificing price and coverage for the sake of a quick quote. It is still the case that many insurers want an underwriter to review your business to get the best available pricing. This underwriting process often takes some time to complete.
If you are a small business, we suggest working with an insurance broker at least two weeks in advance of your insurance renewal. If you are a larger business ($2,000,000+ in gross sales), we usually recommend beginning 90 days before your current policy expires.
2) Gather operations and building information for your business.
Insurance companies all want to know similar things about your business before providing a commercial insurance quote. Having the answers to those questions ahead of time will help you expedite the process.
For example, make sure you have an idea of your estimated gross sales and payroll for the upcoming year. In addition, keep information like your FEIN number and any important contractual agreements readily available.
If you own any property, the insurance company will always want a description of it, as well as construction updates on the buildings you own. Just remember, the more details you provide, the better pricing you will get.
3) Order a "loss run report" from your current insurance agent.
Almost every insurance carrier will require you to provide "loss runs" before issuing a final quote. A loss run document is the claims history you have with your current insurance company. The insurance company you are receiving a quote from will use this document to help them price your policy more accurately.
You will need to provide loss runs going back a minimum of three years. The further you can go back, the more discounts the underwriter can potentially add, assuming the loss runs show no or few losses.
4) Know what makes your business attractive to insurance companies and prepare to explain why.
Insurance companies determine rates by grouping together businesses like yours that they already insure. They study these groups and predict the losses that the group will have in the future. They hope to obtain enough combined premiums to pay for the claims.
As someone who wants an affordable insurance quote, it is your job to present your business in a way that positions you to get the lowest rate in that industry group.
For example, if you are an electrical contractor, you need to convince the underwriter that you are the lowest-risk contractor out of all the other contractors that they insure. You can do this by explaining your investment in safety, the quality of your buildings, or the relevant work experience of your employees.
Positioning yourself as a desirable insured will help you find the most opportunity for premium discounts.
5) Find a broker that can provide options.
When contacting an insurance agent, ask them how many insurance companies they are contracted with, and if they have any experience writing insurance in your industry.
If your insurance agent only works with one insurance company or has no real experience insuring your industry, what are the chances that they will provide best available quote for your business?
6) Evaluate the quotes you receive.
A critical part of finding affordable business insurance is comparing the quotes you receive. At this stage, you will ideally have developed a relationship with an insurance broker that you like and trust.
Some cheap quotes aren't worth the paper they are written on. But some quotes are cheap and include excellent coverages! Having that advisor will help you weed out the good from the bad and create an optimal outcome for you and your business.
Tips For Getting The Most Out Of Your Insurance Quote
Not every quote is the same, and taking a cheap business insurance policy can have significant repercussions if it’s handled wrong. Here are some common problems that we see, as well as our tips on how to get the best value for your dollar.
1) Classify your business correctly.
One of the biggest mistakes that we see business owners and inexperienced insurance agents make is misclassifying a business to make the insurance cheaper.
This can sound like a good idea. It can even feel like a good idea, since your monthly premium will be lower for the first year. The problem is that at the end of each commercial insurance term (usually a year), the insurer will send an auditor or inspector out to your business to verify gross sales, payroll, and operations. Once it is discovered that the business was misclassified, the underwriter will adjust the class code, and the difference in premium will be due in 30 days.
We have seen these premium audits run up to 10x the original premium just due to a general liability misclassification. You’ll have to find a lot of cash in 30 days; on top of that, the insurance company will amend your current insurance to include the correct classification, increasing your monthly cost.
In short, you get hit twice, and you cannot spread the payments out over time.
This is not ideal, since you cannot plan around owing that kind of money. If you had classified the policy correctly at the beginning, you might have secured a more affordable option from the start!
2) Know what you are buying.
It is critical to know what you are buying and the gaps in your insurance coverage. You may think of commercial insurance as a tool to get certificates when you have customers that request them. But the right insurance policy can protect you from a terrible event or lawsuit that might otherwise take your business down. Don’t you owe it to yourself to understand what you’re purchasing, and why?
Often, the difference between a great policy and a terrible policy is less than 5% in cost. Sometimes there is no difference in cost between the two. You only know if you understand what you are purchasing and have those important conversations with an insurance professional.
3) Only have two agents quoting your insurance at once.
We suggest not having too many agents quoting your business at one time. To use an old anecdote, having "too many cooks in the kitchen" is a real problem in the insurance industry.
Each insurance company will only talk to the first agent that sends a submission. That means each agent after the first gets told, "Sorry, it’s too late."
Most commercial insurance programs involve multiple insurance companies for different types of coverages (i.e. Travelers for the general liability and Chubb for the property). If you have a bunch of agents and each has only one or two carriers reserved, chances are nobody will be able to put together the optimal solution.
In addition, the best and most experienced insurance professionals will generally not work with you if there are too many agents involved. That limits your options even more!
4) Don't shop around for quotes more than once every three years.
Let’s say it takes you, an underwriter, a couple of hours to put together a quote. You have a customer that comes in for these quotes all the time but has never actually purchased insurance from you. Would you work hard to give them your best deal?
Insurance companies keep a file on your business. They can see every time you have submitted a quote. If they know that you ask them for a quote every year but you never sign with them, they will often put less time into the quote to focus on more lucrative opportunities.
In our experience, the optimal time to requote the market is around every three years. That way, you can pull a complete loss run as mentioned above, and the insurance companies think they are getting a legitimate shot at winning your business.
Summary
Finding affordable insurance requires quite a bit of due diligence. Ultimately, we suggest forming a relationship with an agent that you like and trust to find you the best deal on insurance.
If you are looking for that relationship and guidance, we would love to help guide you through the process of getting quotes and selecting the best option for your business.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.