How is an insurance premium calculated?
Business owners know that having insurance is essential. Without it, they have to pay costs associated with property damage, lawsuits, and other incidents out of their company’s revenues or savings. And the unfortunate reality is that a single issue can create an expense that’s thousands of dollars, tens of thousands, or more. Still, they want to keep the cost of their financial protection as low as possible and wonder, “How is an insurance premium calculated?”
This article explains how insurers price their policies, the relationship between deductibles and premiums, why premiums sometimes change, and more.
What’s an insurance premium?
If you’re new to business insurance (or insurance generally), you might first want to know what exactly a premium is. The short answer is that it’s your cost to purchase insurance coverage. You might pay your premium monthly, quarterly, annually, or at some other interval, but your payment is for some or all of what you owe for the policy period (typically a year).
It’s important to know that your insurance coverage can be interrupted if you fail to make a required payment. If you suffer a loss during that time, it likely won’t be covered.
You should also know that insurance policies typically also have a deductible. That’s an amount you pay toward a claim before your insurance coverage kicks in. For example, if your commercial auto policy has a $1,000 deductible and you report a claim for $9,000, you pay $1,000, and your insurer covers the remaining $8,000.
Your deductible also affects your premium, as we explain later in this article.
How does biBerk determine insurance premiums?
At biBerk, we follow an industry-standard process for calculating premiums for insurance policies that’s fair, accurate, and appropriate to the risks covered. We make our determination based on the type of policy and several of your company’s characteristics, including:
- The size of your business (e.g., payroll, revenue, headcount, building/operating space)
- How long you’ve been in business
- Where your company is located
- Your industry
- Your company’s claims history
- The risk inherent in the work your employees do
Why does a higher deductible lower your insurance premium?
Choosing a higher deductible for an insurance policy typically results in a lower premium. That’s because by saying you’ll pay more toward any claims, you’re accepting more of the financial responsibility for incidents.
You might think of it like buying a house. The more you put down, the lower your monthly payment will be. In insurance, you don’t put anything down upfront but agree to pay a particular amount toward each claim.
It’s crucial to carefully consider your deductible and premium before buying insurance. It can be tempting to choose a high deductible to get a lower premium. However, you’ve got to be able to pay that amount if an incident occurs resulting in a claim.. Ultimately, the key is to find a good balance between your deductible and insurance premium.
Why did my biBerk insurance premium increase?
Insurance policy premiums can change during the policy period, at the end of it, or when you renew your coverage. But it’s important to note that premiums only increase (or decrease) for a handful of clearly defined reasons.
Some of most common causes of insurance premium changes are:
- Policy endorsements. These are modifications to your coverage, such as adding or removing a driver on a commercial auto policy. These changes can affect your insurance cost.
- Incomplete and inaccurate submissions. If our subsequent research reveals information you didn’t disclose on your application—like vehicle accidents or doing work at heights—we might increase your premium.
- Audit results. Some policy premiums are set based on information that can subsequently change. For instance, payroll is one factor in the cost of workers’ compensation coverage. Since payroll can vary significantly during the policy period, insurers conduct audits at the end and require you to pay additional premium or provide you a refund if appropriate.
- New price at renewal. Factors like increased claims costs in an industry or geographic area, economic changes like inflation, or your company having filed one or more claims in the past policy period can cause higher premiums when you renew your coverage.
We notify you by mail and email of any premium changes during the policy period.
Tips for lowering insurance rates
If you want to know how to lower your insurance premiums, there are several steps you can take. One is to choose a higher deductible. As mentioned above, that’s an action you should only take after careful consideration and confirmation that you can cover the higher deductible any time (and every time) you need to file a claim.
You can also influence your insurance premiums in the long term by operating as safely as possible. Your claims history affects your insurance rate, and all other factors being equal, businesses with fewer claims have lower premiums.
In addition, having all your coverage with one company (i.e., bundling) and paying annually rather than monthly are other ways to save. It’s also helpful to review your policies regularly to ensure you have all the coverage you need but not more than you need. Scaling back, if applicable, can lower your insurance costs.
Other common questions about insurance premiums
If you ever have questions about the premium for a biBerk insurance policy, we encourage you to reach out to us. We’re happy to explain why your premium has changed.
Here are answers to a few frequently asked questions about premiums from business owners and decision-makers for your convenience:Where can I view my premium and due date or make a payment?
You can view that information by logging in at the Make a Payment page using your policy number and associated phone number.
What happens if I don’t pay my insurance premium?
Failing to pay your premium will result in a cancellation of your policy, putting your business at risk of taking on a significant expense if an incident occurs.