Top 5 Factors That Affect Your Business Insurance Premiums
Posted by: Communications Team | May 7, 2025
Move over death and taxes, the annual rise of business insurance premiums is almost becoming a sure thing as commercial premiums have now risen 29 consecutive quarters dating back to 2017.
“According to The Council of Insurance Agents & Brokers (CIAB) quarterly survey, commercial property/casualty premiums across all account sizes rose by 5.4 percent in the fourth quarter 2024 – about the same as the third quarter’s 5.1 percent and the second quarter’s 5.2 percent,” reported the Insurance Journal in February.
Understanding what drives your business insurance premiums is essential for controlling costs and making informed decisions.
“Whether you’re a small startup or a well-established company, knowing how premiums are calculated and what influences the cost of business insurance can help you proactively manage your risk and budget,” says Kyle Dean, President and CEO of Dean & Draper.
Below, we break down the top five components that most significantly impact your business insurance premiums.
Industry and Type of Business
The nature of your business is one of the most influential factors in determining your insurance premiums.
Insurers assess the inherent risks associated with your industry. For example, construction companies, manufacturers, transportation firms, and restaurants face higher risks of property damage, injury, or liability claims compared to lower-risk sectors like consulting or IT services.
As a result, businesses in higher-risk industries typically pay more for coverage.
- Why it matters: The more hazardous or litigious your industry, the higher your premiums will be.
- Example: A construction firm will generally pay more than a retail shop for comparable coverage due to increased exposure to accidents and claims.
Insurance Business magazine reported in 2023 that the industries with the highest general liability insurance costs were: construction, installation services, landscaping, manufacturing, cleaning services, retail, food & beverage, building design, property & real estate, and personal care.
Claims History
Your company’s history of insurance claims is a direct indicator of future risk to insurers. If your business has filed frequent or high-value claims, insurers may view you as a higher risk and increase your premiums accordingly.
Even a single severe claim can impact your rates for years.
- Why it matters: A clean claims history can help you secure lower premiums, while a history of frequent or costly claims will drive costs up.
- Tip: Implementing strong risk management practices can help reduce accidents and claims, keeping your premiums in check.
Business Size: Revenue, Payroll, and Number of Employees
The size and scale of your business directly affect your insurance costs. Insurers look at metrics such as annual revenue, payroll, number of employees, and the value of your assets.
Larger businesses with more employees and higher revenues are seen as having greater exposure to risk as more people, more assets, and more customers mean more potential for claims.
- Why it matters: Growth is great for business, but it also means higher insurance premiums.
- Example: A business with 50 employees and $10 million in revenue will pay more than a sole proprietorship with $200,000 in annual sales.
Business Location
Where your business operates plays a significant role in how premiums are calculated.
Insurers consider geographic risks such as crime rates, weather patterns (floods, hurricanes, tornadoes), and even the legal environment of your state or city. Businesses located in areas prone to natural disasters or high crime will face higher premiums.
Additionally, the physical condition and age of your building can influence costs -- older buildings may be more expensive to insure.
- Why it matters: The risk profile of your location can significantly impact the cost of business insurance.
- Tip: Investing in property improvements and security measures can sometimes lower your premiums.
Coverage Needs and Policy Choices
The specific types and amounts of coverage you select are fundamental to how your business insurance premiums are calculated.
Higher coverage limits, lower deductibles, and additional policy endorsements or riders will all increase your costs.
Conversely, opting for higher deductibles or bundling policies (such as with a Business Owner’s Policy) can sometimes reduce your overall premium.
- Why it matters: The more comprehensive your coverage, the higher your premium.
- Tip: Work with an experienced advisor such as Dean & Draper to tailor your coverage to your actual risk exposure. Agents can make sure you don’t pay for unnecessary protections or leave critical coverage gaps.
“A knowledgeable and reputable insurance broker can be the difference between protecting your business and suffering devastating losses,” writes insurance expert Kimberlee Leonard for Business.com.
Additional Factors to Consider
While the five factors above are the most significant, other elements can also influence the cost of business insurance:
- Credit Score: Some insurers use business credit scores as part of their risk assessment. A higher credit score can mean lower premiums.
- Employee Driving Records: For businesses with commercial auto policies, the driving history of employees is considered.
- Industry Regulations: Certain industries require specific coverages that can impact your premium.
- Physical Security Measures: Enhanced security and safety protocols can sometimes reduce risk and lower premiums.
How Premiums Are Calculated
Insurance companies use sophisticated models to assess your risk profile and determine your premium. They analyze your industry, claims history, business size, location, and coverage needs to estimate the likelihood and potential cost of future claims.
Actuaries and underwriters then set your premium to ensure the insurer can cover claims while remaining competitive in the market.
It’s important for business owners to not automatically go with the lowest premium option they find.
“Cost is an important consideration when it comes to choosing the right coverage, especially for many small businesses with limited financial resources,” advises Insurance Business magazine. “But as a small business owner, you should also pay attention to the quality of coverage less expensive plans provide. While a cheaper policy may fit your budget, it may not offer the level of coverage that your business requires.”
Managing the Cost of Business Insurance
Understanding what drives your business insurance premiums empowers you to take action:
- Regularly review your coverage to ensure it matches your current risk profile.
- Invest in safety and risk management programs to minimize claims.
- Maintain accurate records and update your insurer on changes in your business.
- Work with an independent agency like Dean & Draper that can shop multiple carriers for the best rates and coverage.
Why Choose Dean & Draper?
At Dean & Draper, we combine over 500 years of collective experience with cutting-edge technology and a client-first approach.
As a Trusted Choice agency and one of the largest independent insurance brokers in Texas, we have the expertise, resources, and relationships to find the best solution for your business -- no matter your size or industry.
Our advisors take the time to understand your unique needs, build a customized risk management plan, and help you lower your Total Cost of Risk (TCOR).
When you work with Dean & Draper, you get more than just a policy -- you get a dedicated partner committed to your success.
Contact Dean & Draper today for a personalized consultation and discover how our team can help you protect your business and your bottom line.
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