Many insurers who offer general liability coverage use a general liability rating system to determine your insurance premium. The three factors most often used in the rating system are your business classifications, the rates assigned to those classifications, and the assets or value of the business being insured.
Over a thousand different categories are applied to business classifications used in the rating process. Businesses will receive different classifications based on the type of operations they conduct. In theory, businesses with similar operations will have similar risks and similar liability claims, and are therefore charged similar rates.
Assigning Rates to Classifications
Rates will vary widely from insurer to insurer. Insurers may develop their own rates using internal data or they may use independently aggregated information. Your business may receive more than one classification from your insurer, especially if you offer multiple services, thus impacting what rates your business will receive.
Your Value Is Also a Factor
The square footage your business occupies, your projected payroll for the year, and your annual sales can all play a role in what your liability premium is. The value of your business is the final key in understanding how much liability coverage is needed and how much it will cost your business. An insurance agent will consider all these factors in the general liability rating system when determining the cost of your liability coverage.