Understanding High-Risk Business Insurance: What to Expect

Some businesses are associated with higher risk than others, and business risk insurance costs are determined based on the level of risk the business faces. Some risks are associated with the level of liability the business faces. For example, a mining operation would carry significantly higher risk than a retail store for injury and loss of life. Some risk is more financial in nature. Certain businesses face higher financial risk in their operation. For example, a company that manufactures and sells consumable products may face higher risks than a company that makes hair ties, based on the number of potential injuries that could occur.

Each insurance company will have their own way of determining which businesses are high risks. The way risk is determined is based on actuarial information and industry standard. Being in a high risk category will most likely increase your operational costs, both for insurance, and in the case of financial risk, for your banking needs as well.

Determining Risk

When insurance companies determine what level of risk they will face by insuring you, part of that assessment is based on what type of claims have been experienced before. If you are in an industry where property damage or injury to workers or customers is more likely, whether it's construction or mining or offering helicopter rides, your liability insurance costs will be much more expensive than lower risk counterparts. Not only is your coverage more expensive, but you will often be required to carry more coverage, because more extensive injuries or damages are likely to occur if there is an issue.

Certain types of businesses are automatically considered high risk because of the nature of their businesses. These industries include:

• Certain types of engineers
• Architects
• Accountants and tax planners
• Dentists
• Medical doctors
• Psychologists

High Risk Locations

Sometimes risk is determined based not on industry but on location. If your business is located in an area with higher crime, your insurance rates might be higher because the number of claims for robbery, vandalism, and property damage are higher than normal in that area. Your business might be located in a hurricane or earthquake zone. If so, your rates will be higher because the risk of you having to file a property damage claim is higher than other areas.

Financial Risks

Some risk is based on the likelihood that you will have added financial risk. Investment consultants, bond and stock sales people, and other people who give advice for a living may find themselves in a high business risk insurance category because of the nature of their business.

While business insurance is important for all businesses, if you operate a business that falls within a high risk category, business insurance is even more important, because the likelihood of you needing the insurance rises dramatically with your assessed risk. It may seem like a large expense, but the cost of losing a lawsuit or facing a liability issue without insurance can be much more dangerous and costly.