When you’re purchasing any type of insurance for business, the base amount you’ll need to pay are your premiums. This is the cost your insurance carrier charges you for your policy, before any additional fees or service charges. You’ll need to pay your premiums on a monthly, semi-annual or annual basis, depending on what is required by your insurance carrier.
How are premiums set?
The amount of your premiums will increase based on how much insurance you purchase and how comprehensive your coverage is. They’re determined by actuaries on behalf of the insurance carrier who estimate the likelihood of risks and the costs associated with potential claims. This helps them determine how much cost could be involved in paying any claims your company submits.
How does an insurance company use premium payments?
The premium payments accrue and sit with the insurance company as liquid assets to pay your claims, should they occur. A portion of your premium payment covers operational costs and other expenses, plus a profit to the insurance company. (Like any other business, profits are what keep the lights on.) Year after year, your premium payments add to a collective fund and sit in wait until you submit a claim.
Why do insurance premiums increase?
If any insurance company has had a profitable year, insurance premiums may remain stable. In less-profitable years when the carrier has sustained more claims and losses than planned, it may need to re-assess its finances and raise interest rates. In addition, if your business has sustained more claims than expected, it could also result in an increase in your insurance premiums.
How to shop for insurance
When it’s time to shop for insurance, you have two options. First, you can shop for insurance on your own by comparing the costs between carriers and choosing the plan that’s best for your group’s needs. But if this sounds way too time-consuming (and it can be), it helps to work with an insurance broker. Your broker will act as the “middle man” between you and the insurance carriers. A broker will shop on your behalf to secure the most competitive rate based on your needs, and then present you with your options to make your final decision.
Need guidance?
If you’re not sure where to get started, or need help assessing the risk faced by your company—let Odell Studner help. To learn more about the risk assessment and management services we offer, contact us today!
