Small Business indemnity insurance costs
The cost of indemnity insurance varies enormously due to a range of factors. When professional self employed people, or contractors ask an insurance broker, ‘how much is indemnity insurance’? – it is difficult for the broker to instantly calculate an insurance premium, without first understanding the nature of the risk. For many small businesses, whose core business involves providing specialist advice and guidance, annual insurance costs represent a fixed but necessary overhead. Yet, to alleviate the pressure on gross margins, it is always sensible to shop around for an alternative quote, to keep overheads and expenses under control.
A business owner is likely to seek out a cheaper price if their annual renewal cost unexpectedly rises. Price hikes normally prompt policyholders to think twice about continuing direct debits that pay for their policy. Many policyholders will naturally ask the question ‘is this policy worth the value I am receiving from renewing this policy?. Of course, the answer to this question will be dependent upon the attitude of the individual and the nature of their work. If you believe that it is highly unlikely that you will be sued for compensation, or that it will almost impossible for the client to prove you have done anything wrong, you may feel that taking out PI policy is bit of an extravagance. However, for most professionals in a commercial environment, an indemnity policy is absolutely vital in today’s litigious commercial environment. The cost of legal fees alone is enough to put off even the most cavalier of entrepreneurs from allowing themselves to be under-insured.
Switching providers can be a hassle, and in the case of professional indemnity – means that you may miss out on any potential loyalty incentives to renew. So, if you are considering becoming self-employed, beware that there are a variety of price based factors that influence the cost of your new policy, including:-
Your professional occupation dictates the nature of the day-to-day work and the types of clients you will be servicing. Insurers have long experience and detailed statistics on the nature of claims in certain industries, and in certain geographies. They will use this information to rate each market sector, occupation and geographic region. They can reasonably predict the likelihood of an claim occurring in a certain sector and estimate it’s likely value. Using this as a basis for price setting, actuaries can apply rating structure to a professional indemnity product.
So, your business occupation is one of the most important factors that is likely to influence the cost of your indemnity insurance. Insurers will view that the greater the potential loss to the client, the riskier category of occupation is. Indeed, they will have lists of occupations which they will provide insurance for, and others they were specifically exclude from providing quotes to.
If you have had a number of previous insurance claims, it probable that the cost of annual premium will rise as a result. Professional indemnity claims for compensation (such as those for negligence), are inherently costly to settle and to defend. Disputes can be quite complicated and time-consuming, when compared to claims related to a typical minor road accident. Just like the principles of motor claims, if your insurer has had to pay for a large claim where you were at fault, your insurer will probably raise the price of your insurance premium at renewal time. Likewise, if you can remain claims free for a long time, it is possible some insurers may offer discounts to keep the cost of your policy competitive.
Most insurance companies policies tend to offer a fixed sum insured cover level. You could choose to take a bigger excess in the event of a claim. To keep the costs of the premium manageable, owners may opt to reduce number of optional extras they go for. Always seek qualified advice before buying insurance on this basis – you should all put your insurance needs first to find a policy that sits within your budget range.
The price quoted may also vary between providers, due to the fact that some insurance companies have different business priorities. The example, underwriter A may already have exposure to a larger number of clients than he expected during a period. Whereas underwriter B may be enthusiastic to enter the indemnity market, by offering first-year discounts to attract new business clients. The underlying calculation of risk and reward is complicated. Underwriters will calculate risk factors such as occupations covered, geographies, number of claims, profitability of their book of business, economies of scale, cross selling opportunities and demographics. Another important consideration is whether the insurer is planning to sell directly to the public, or use a broker network. Selling directly will mean greater direct costs which it be forecasted when considering return on investment.
To Better understand the cost of indemnity insurance for your business, please contact us at Assetsure today.
Here is a sample list of occupations we can provide insurance cover for:-
