General liability insurance is a must for small businesses that interact with customers. A number of factors about your business, its operations, and its potential risks can influence your general liability insurance premium.
Creating a small business insurance policy is a delicate balancing act. Insurance companies assess how much risk they’re taking on by covering your business. They need to know more about your company, its operations, and where its potential vulnerabilities are.
Each of these factors influences the cost of commercial general liability (CGL) insurance for business owners. Let's take a look at what these considerations tell your provider about your business and why they affect the cost of your general liability policy.
One of the primary functions of general liability insurance is to protect your business from the cost of premises liability claims. The price of your insurance coverage is influenced by the size and physical condition of your office building or business location.
Larger premises mean more places where third-party bodily injuries or property damage can happen (if your property is open to the public), which could raise your premium. Insurers will also examine the age of the building and whether it’s up to code. Generally, newer construction lowers your liability rates, whereas older construction with a lack of accessibility can raise general liability rates because it’s considered a higher risk.
An insurance agent uses general liability class codes to classify small businesses according to their overall risks. For insurance underwriting, these codes will group small businesses with those that perform similar work and face the same types of hazards.
This allows insurers to analyze claims within similar fields and locations to determine the level of claims and their costs within each code group.
Your class code will be compared to other factors such as the size of your payroll, your gross sales, and the size and type of buildings you own or lease, to help determine your insurance needs and your insurance rates.
Keep in mind that your class code can also be used to reject claims in areas outside of your normal business operations.
For example, if you ran a catering business and expanded to running a restaurant or food carts, these changes would likely be outside of your class code and not covered under your general liability insurance. Your insurer would want to know about these changes in advance and would likely change your class code and premiums accordingly.