Small business insurance costs explained

If you’re reading this, chances are you’re a small business owner. You clicked hoping to find a golden number for how much your insurance is going to cost. Or what typical small business insurance costs are.

Unfortunately, it’s not that easy. As you’ve probably experienced, small business insurance is complex. There’s a lot to think about: what cover do I need, how much cover do I need, what insurer should I use, how much should I be paying? You get the idea.

So, how much does small business insurance cost?

Instead of giving you an easy answer (which’ll probably be wrong), we’re going to take the better route of explaining why your insurance costs a certain amount. And give you an insight into how your insurer thinks when they receive your quote request.

Because insurers really do care about small businesses. They don’t only want your business, they need it. There are over 5.6 million SMEs in the UK. That’s 99.9% of all our businesses, employing over 60% of our workforce, and contributing over half of all turnover in the UK private sector.

Understanding how insurance costs work gives you a leg up. It helps you understand what you’re buying and how it’ll protect you. And makes it easier to get a better deal.

Factors affecting small business insurance costs

Before we dive into different kinds of insurance, let’s talk about some fundamental factors that will change the cost of insurance for a small business.

These are attributes that every business has. They paint a picture of your business, and give insurers an understanding of how risky you would be to insure.

Here are a few examples:

• The nature of your business – who you are and what you do
• Annual turnover – how much business you do
• Number of employees – demonstrates the size of your business and, for some types of insurance, adds to your risk
• Location – where you’re based, and how many locations you have
• Claims history – whether you have any previous or existing claims
• Cover limits – how much cover you need.

Get the idea? Depending on each of these factors, and many more besides, your costs can go up or down.

A basic example might help. An accountancy firm with 100 employees, spread across three locations, with several previous claims, would expect to pay a lot more for their small business insurance than a self-employed virtual assistant who operates out of a home office.

When thinking about the cost of your insurance, consider how these factors might raise or lower your risk.

What factors can cause small business insurance costs to increase?

Almost any factor can cause your business insurance costs to go up. The examples we gave above can all increase your costs. But they can also reduce them.

It entirely depends on the specific nature and attributes of your business.

We’ll be a bit more specific, though, and highlight some key offenders that can lead to hefty price increases when you come to renewal:

• If you’ve had to make a claim in the past year, or someone has claimed against you, your costs can increase a lot.
• If your business has grown a lot in the past year, expect your renewal to grow as well. Larger businesses mean more risk for your insurer.
• External factors like interest rates, market trends, and global events can impact your insurance costs.

It’s important to remember that any substantial change to how your business operates will probably affect your insurance costs.

But don’t be tempted to conceal facts about your business to reduce your insurance costs. If you needed to make a claim, it could invalidate your cover or drastically reduce your claim amount.

Types of insurance and how much they cost

Now that we know some important factors to consider, let’s delve into some specific types of small business insurance and what can affect their costs.

We’ll focus on several of the most prominent insurance types first: public liability, professional indemnity, and employers’ liability insurance.

Public liability insurance

Public liability (PL) insurance pays your legal costs and compensation for claims involving third-party injury and property damage that are your fault. Think a client or member of the public hurting themselves on your premises, or you or your team accidentally damaging their property.

For PL, the location of your business and how many locations you have are key factors in costs. As is what your business does. The more footfall your locations have, the higher the risk.

You should also expect to pay more depending on what industry you’re in. A busy restaurant or café, or a construction company, should expect high PL costs.

Professional indemnity insurance

Professional indemnity (PI) insurance covers you for claims of negligence, defamation, breach of confidence, and intellectual property (IP) rights infringement. An example might be failing to meet the contractual obligations of a project you’re working on for a client.

Working out how much your PI insurance will cost is no easy task. It depends on lots of things. Some professions will pay more for PI, like architects or engineers. This is because their mistakes can lead to big problems that cost a lot to fix.

You’ll also pay more if your business has a lot of clients. Or contracts that are worth a lot of money.

Employers' liability insurance

Lastly, employers’ liability (EL) insurance covers you if your employees are hurt or fall ill due to their work with your business. For example, poor training could lead them to getting back problems, or bad hygiene standards at your building could see them fall ill.

The cost of EL will generally go up with the number of employees you have. The same is true of the number of locations you have.

The environment your employees work in affects the cost too. A warehouse will be much riskier than an office.

A few extras to think about

Other factors also come into play with more specific types of insurance.

If your business requires medical malpractice insurance, for example, you’ll face some very different factors, alongside the ones we’ve already listed. The types and number of treatments you offer, as well as the qualifications you have and the number of clients you see, will all affect the cost of your insurance.

You might also have cyber insurance to protect your business against the outcomes of data breaches and cyber-attacks. If you’re an IT or cybersecurity company, your costs will probably be quite high. The same is true if you store a lot of customer data and rely on complex systems that would be expensive to restore.

These are just a couple of examples of other types of insurance that you might get as a small business. Whatever the cover you’re looking for, there are different factors that go into the quote you receive.

How to get the best deal on your small business insurance

First, let’s define what we mean by ‘best deal’. When you hear that phrase, it’s easy to think about cost as the be all and end all. That’s not the case when it comes to insurance.

The ‘best deal’ is a mixture of a few things. It provides the cover you’re looking for, at the level you need, and at a price that gives you good value for money. This will be different for every business and every different kind of small business insurance you need.

Ultimately, you can seek out the cheapest insurance available. But if a claim comes in and you’re not covered, all the gains you’ve made by paying less will go out the window. And then some.

Here are a few tips to getting a great deal when you’re looking for your business insurance:

• Work with an independent, well-regarded insurance broker. Assuming they’re FCA-approved and licensed by them to offer ‘advised sales’, they’ll be able to give you advice and seek out the best deal for your business. Saving you time on your search, getting you the cover you need, and lowering your costs.
• Don’t ‘marry’ yourself to a specific insurer. You’ll unnecessarily restrict yourself on the cover you can get, and probably miss out on finding a better deal and superior cover elsewhere.
• Keep a close eye on the needs of your business. Your insurance requirements will probably change almost every year. Make sure you’re on top of what you need and have all the up-to-date information about your business ready to go when renewal rolls around.
• Don’t be sucked in by a lower price, especially on a price comparison website. Always do your own research and speak to a broker before committing to insurance on price alone.

Rest easy

Having the right insurance in place helps you rest easy as a small business owner. But it doesn’t always come cheap. And cheap certainly doesn’t mean the best.

Determining how the average cost of small business insurance relates to your business is pretty much impossible. And that's because business insurance is an ongoing battle. Your needs will change every year, and your business will evolve over time. Your insurance has to evolve with it.

Staying on top of your business insurance helps keep you protected, and stops a potential claim from becoming a disaster.

Want to find out how much small business insurance will cost for you? Or just have some questions about small business insurance costs? Give us a call on 0345 222 5391.

Image used under license from Shutterstock.