Industry Risk Classification
Insurance companies assess premiums primarily based on your business's industry classification code, which reflects historical loss patterns in your field. Businesses in high-risk industries like construction, manufacturing, or healthcare face substantially higher base rates. Those in lower-risk sectors like consulting or information technology do not. Within each industry, further sub-classifications exist—for example, residential roofing contractors typically pay 3-5 times higher premiums than interior painters despite both being construction trades. These classification systems use statistical loss data to predict future claim likelihood and severity, creating the foundation for premium calculations.
Revenue and Exposure Factors
Your business's size directly impacts insurance costs through exposure-based ratings. General liability premiums typically factor in annual revenue, with each $100,000 in revenue incrementally increasing premiums. Professional liability often uses the same approach, with rates applied per revenue increment. Workers' compensation calculates premiums based on payroll within each job classification, applying rates per $100 of payroll. Property insurance uses the replacement value of buildings and business personal property to determine base premiums. These exposure factors create proportional scaling of premiums based on the potential financial impact of claims.
Claims History Impact
Prior insurance claims significantly influence premium calculations through experience modification factors. Most insurers review 3-5 years of claims history, with recent claims weighted more heavily than older ones. Businesses with claim-free histories often qualify for credits, reducing premiums 10-25% below standard rates. Conversely, companies with multiple claims may face surcharges of 10-50% above base rates. The severity of past claims impacts these adjustments more than frequency, with large liability or property losses creating more substantial rating consequences than smaller claims.
Location Considerations
Your business location is a prominent factor in premium calculations. Property insurance rates vary dramatically based on local natural disaster risks, crime statistics, and fire protection capabilities. Liability exposures differ by jurisdiction based on legal climates and typical jury awards. Workers' compensation costs vary significantly by state due to different regulatory frameworks and benefit structures. Even within states, urban versus rural locations can see premium variations of 15-30% for identical businesses due to these location-specific risk factors.