How Business Insurance Premiums are Calculated

If you own a business in Canada, you might have purchased business insurance, and you might have wondered how your premium is calculated. Totally fair. Knowing how business insurance premiums work is important for running your business smoothly.

So, what exactly do insurers consider when calculating business insurance premiums? Let's take a closer look to find out

Insurance premiums are the payments you make to keep your insurance policy active, offering protection against potential future losses – like if your business temporarily closes due to a fire, or someone takes action against you for slipping & getting injured in your store.  

Insurers determine the amount of these premiums by evaluating the likelihood of a claim being made against your policy and the potential cost of that claim.

1. Industry and nature of the business: The type of business you run affects how your insurer sees potential risks and sets your premium. For example, a barbershop’s property risk exposure is primarily tied to damage or loss of equipment, like chairs and styling tools, within a confined space. In contrast, a photographer may require coverage for expensive cameras, lighting, and equipment that may be transported to various locations, potentially increasing the likelihood of theft or damage. Since no two businesses are the same, the risks they face determine their premium.

2. Annual revenue: This often relates closely to the size of the business and potential exposure to risks. Higher revenue is typically associated with an increased level of customer interaction, potentially larger levels of inventory, and higher numbers of transactions. Therefore, this may increase the likelihood of accidents or claims, leading to higher premiums. For example, a high-traffic clothing store is more likely to face slip and fall incidents. The store’s higher revenue means that potential losses from any operational disruption are significantly larger compared to a similar business of smaller scale, directly impacting the premium of its business interruption insurance.

3. Location: If your business is in an area prone to natural disasters, high crime rates, or other risks, the likelihood of filing claims increases, which would affect your insurance costs.

4. Claims history: A history of frequent claims can indicate potential risks and may lead to higher insurance premiums. On the other hand, a history with few to no claims can be a plus, as insurers see this as a sign of a well-managed, lower-risk business. This makes proper risk management and safety protocols that much more important.

5. Coverage details: The specifics of your policy, like limits and deductibles, affect your premium. Higher coverage limits give more financial protection but cost more, while higher deductibles mean more out-of-pocket costs but lower premiums.

Understanding what affects your premium is just the start. Actively managing your policy ensures it fits your unique business needs and you're only paying for the coverage you need. Here are 4 tips that could help lower your business insurance costs:

1. Regularly review your policy: Insurance needs can evolve with your business, so it's important to review your policies regularly to help you customize coverage to fit your current needs.
2. Foster workplace safety: Having strong safety culture, like having regular safety trainings and accessible safety gear, can help reduce business insurance premiums, as lower rates of accidents and claims directly translate to more favorable premiums.
3. Keep detailed records: Keeping detailed records of your assets, operations, finances, and any incidents or claims can speed up the claims process and help you get a fair payout.
4. Leverage bundling discounts: Combining policies with one insurer, like commercial property & liability and commercial auto insurance, can unlock bundling discounts and simplify insurance management.

Managing your commercial insurance is key to protecting your business without overspending. It’s not just about cutting costs; it’s about making smart choices for long-term stability and growth.

With flexible coverage options, learn how TD Insurance can help your business get the protection it deserves and only pay for the coverage you need.