Seven General Liability Pricing Elements – Classification

As a small business owner it is in your best interest to know how the rates and premiums are promulgated for your commercial insurance quotes. While there are many subjective factors that are involved the pricing mainly comes from seven key areas.

The first and most important is that of classification. This article will deal with the first element of classification and in subsequent articles deal with the other six elements of pricing. If your business is not classified correctly your pricing is not going to be anywhere close to the correct premium that your business warrants.
Most insurance companies have classifications that are pretty broad and generic but if it is too broad and too generic and does not adequately describe your business then you should question that with your broker. While the government publishes standard industry classification codes which can be in the thousands, the insurance companies typically group many of the class codes into more generic broad classifications.
As an example we will use the restaurant classification for discussion purposes because it can be a very broad class or it can be broken down into its subclasses. Some insurance companies use the restaurant classification for any and all types of restaurant exposures. When seeking out your commercial insurance quote, it would be in your best interest to be with a carrier who has sub classifications for your type of restaurant. If your business is a deli that typically is a much cheaper premium with a deli classification then using the generic restaurant classification. Classifications not only vary by the different insurance companies, many times an individual insurance company will vary their classifications for the same type of risk for each of the 50 states. If you’re obtaining commercial insurance in multiple states you might see different classifications for your business based upon state filings that that carrier has made in that specific state. That should raise a red flag in that it could be an error because the classifications are different or it may or may not be in your best interest that a specific state has a different classification for your business. The appetites for different General Liability exposures vary by carrier and by state. You will usually see that “appetite” reflected in the flexibility or lack there off in the classifications that they offer you.
Once you get the main classification on track you might attempt to further clarify to see if there are sub classifications within the generic classification. An example could be that of a restaurant that also does catering and maybe also rents out their banquet rooms. Those are three different events and three possible different classifications that could be used versus the generic restaurant classification for all of them. Disclosing all of your exposures, as in this example our restaurant, of catering, liquor receipts, food receipts, banquets how my fine dining, bar, entertainment can all lead to a refinement and fine-tuning of your pricing. The correct classification of your general liability code is extremely important in you getting the best competitive commercial insurance quote for your company.

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