Ways Your Loss Ratio Affects Your Business Insurance Premium
Loss ratio is one of the most important factors that insurance companies use when determining your business insurance premium, so you’ll want to pay close attention to it.
There are 7 major ways that your loss ratio can affect your premium, and knowing them will help you make the right choices when it comes to your insurance strategy.
These are listed below that shows the way your loss ratio affects your business insurance premium
1) The amount of money you pay for your insurance policy
The amount of money you pay for your insurance policy is affected by a few factors, including the type of business you own, the number and severity of claims against you, your loss ratio and more.
The higher your loss ratio (the number of claims filed against you compared to the premiums paid) the more you’ll have to pay.
A high risk of accidents or losses might also affect your premium.
A low risk might mean that you qualify for discounts on your premiums because the risk involved in insuring you is minimal.
Contact our experts at Claim Master today to learn how we can help reduce the cost of your commercial insurance!
2) The types of coverage you have
Your business insurance premium will be determined by the type of coverage you choose.
For example, if you have property and liability only, then your premiums will be lower than if you had property and liability plus workers’ compensation.
The more coverage you have, the higher your premiums. It’s important to get a professional opinion when determining which type of coverage is best for your company.
The types of risks that are covered in each type of insurance are different and this impacts what kind of premium is charged.
For instance, property and casualty insurance may not cover risk such as cyber-attacks or terrorism.
In order to offer complete protection for all possible risks, it may be wise to purchase multiple forms of business insurance.
3) How often you file claims
Business insurance can be a great way to protect your business from unforeseen risks, but it can also be a huge expense.
If you have a high risk for loss, your business insurance premium will most likely cost more than someone with low or average risk for loss.
It’s important to understand the many factors that go into determining your risk for loss so you’re better prepared to make informed decisions about coverage.
One of the factors affecting your risk for loss is the frequency at which you file claims on your insurance policy.
Typically, businesses who file fewer claims over time will pay lower premiums than those who file more frequent claims.
Another factor in calculating your risk for loss is the type of industry your business operates in.
4) The severity of your claims
The severity of your claims can have a great effect on your insurance premium. Insurance companies take into account the number and severity of accidents, natural disasters, and losses that you have had in the past when deciding what type and how much coverage to offer you.
The higher the number and severity of these types of incidents in your history, the more you are likely to pay for insurance coverage. The severity of each incident also plays a role in determining your insurance rate.
A smaller loss with a high degree of damages means higher costs for an insurer than a larger loss with only minimal damages.
For example, if someone files a claim worth $2 million with total damages at $100,000 then they will be looking at paying out $1 million while their insurance company will be paying out just $200,000.
If this scenario were flipped around then the total cost would be closer to even at $600,000 ($2 million/$300).
5) How long it takes you to resolve a claim
Claim resolution time is one factor that goes into the loss ratio. The longer it takes for you to resolve a claim, the higher your loss ratio will be. In some cases, insurance companies may even cancel your coverage or refuse to renew it.
If you can’t fix something quickly, at least make sure that everyone knows about it and updates them as soon as there are any changes in the status of the issue at hand.
It’s also best not to speak with a customer until you have all the facts so you’re able to provide them with accurate information.
And never say we’re sorry unless you mean it! Remember, the word sorry implies regret and indicates that an apology isn’t enough.
Expressing regret is great because it shows empathy towards the person experiencing hardship or disappointment but adding we apologize or we’re sorry on top of that tells your customers that this event was out of your control
6) The amount of time you’ve been in business
The amount of time you’ve been in business also determines your liability insurance premium.
If you’ve been in business for less than five years, your rates will be higher than if you’ve been in business for more than 10 years.
A big factor that impacts how much you pay for a policy is the size and type of losses in the past year.
The greater the percentage of losses over premiums paid, the more likely it is that an insurer will raise rates or refuse coverage altogether.
A low loss ratio means that an insurance company will reward the lower risk with better premiums and better coverage on policies they offer.
And don’t forget about deductibles! The deductible is what you have to pay out-of-pocket before the insurance kicks in.
As long as your deductible is high enough so that you’re not paying too much up front, then this could help increase your profit margin and make sure that your premiums are lower because there’s less chance of any loss taking place.
7) Your industry
Business owners rely on their insurance to protect them against financial loss. However, if you don’t have the right amount of business insurance coverage, this can put your company in a vulnerable position.
The frequency and severity of your losses will determine how much you pay for business insurance premiums each year.