Legal claims. Property damage. Business disruptions. There are various financial risks that can place serious strain on a small business – and that’s why appropriate insurance coverage is essential.

Without the right insurance, a single claim could be financially devastating. However, business insurance cost for small businesses varies widely depending on different factors. Understanding these factors helps in making informed, cost-effective decisions.

What affects small business insurance cost?

The cost of small business insurance depends on several key factors. These factors include:

• Industry risk level: Depending on your business sector, you may carry out activities insurers classify as high risk. For example, roofers often work at height, which increases the risk level. Participating in such activities can result in higher premiums, regardless of the overall industry.
• Business size and revenue: Larger organisations with higher turnover have more to cover. This often sees higher insurance costs compared to small businesses.
• Claims history: A history of insurance claims can raise premiums. This is because there’s a larger perceived risk for insurers.
• Location: If your business is in a high-crime area or flood zone, this could cause the price of coverage to go up.
• Coverage level: Higher policy limits and additional coverage options increase costs. However, in return this does offer better overall protection.

Some basic policies cost as little as £50 per year, but a single claim can exceed £10,000. Despite this, many small businesses underestimate the financial risk of being uninsured.

Breakdown of key small business insurance costs

Small business insurance costs vary largely based on coverage type and risk level. Here’s what to expect from key insurance types that small businesses often use.

Public liability insurance is designed to protect your business in the event that a third party is injured or their property is damaged as a result of your business activities. This type of insurance is especially important if you interact face-to-face with clients or members of the public. Public liability insurance for small businesses typically starts around £150, but costs can rise into the thousands depending on your industry, business activities, and chosen coverage limits.

Employers’ liability insurance covers claims arising from workplace injuries or illnesses sustained by your employees. It is a legal requirement for any business that employs staff, even on a temporary or part-time basis. The costs typically start from £100 onwards, depending on the nature of the work and associated risk levels.

Professional indemnity insurance is essential for service-based businesses, particularly those that provide advice or consultancy. It offers protection against claims of negligence, errors, or omissions that result in financial loss to a client. Prices for this cover can start from £150 per year, but businesses in higher-risk professions should expect to pay considerably more for adequate protection.

Commercial property insurance provides financial protection against damage to your business premises, contents, and equipment due to events such as fire, theft, or vandalism. The cost of this insurance depends on factors such as the property's value and the extent of coverage required. Premiums typically range from £300 onwards.

Business interruption insurance is designed to safeguard your income if your operations are disrupted by unforeseen events like fire or flooding. It helps cover lost revenue and ongoing expenses during the downtime. Prices for basic policies start at around £150 per year, though comprehensive coverage with higher limits may exceed four figures.

Many businesses opt for a combined policy to save time while gaining full protection.

How to reduce small business insurance costs

Start by comparing quotes from different providers to ensure you’re getting the best value for your business insurance. Using a service like Radius can simplify this process and help identify the most competitive deals on the market.

Consider combining multiple policies with the same insurer to save time. Having essential covers like public liability, professional indemnity, and commercial property insurance all in one place simplifies management and reduces paperwork.

Opting for a higher voluntary excess is another way to reduce your monthly premiums. While this means you’ll pay more out of pocket in the event of a claim, it can lead to significant savings over time.

Improving your risk management can also lower your insurance costs. Implementing strong safety protocols and maintaining compliance with industry standards can reduce the likelihood of claims and make your business more attractive to insurers.

Maintaining a clean claims history is equally important. Use risk management tools and preventative measures to minimise obvious risks. By doing so, you help build a consistent record of low risk, which can contribute to keeping your premiums down.

Finally, review your coverage regularly. As your business grows or evolves, your insurance needs may change. Adjust your policies to ensure you’re not overpaying for coverage you no longer require.

Cutting costs is important, yes, but choosing the cheapest policy isn’t always the best approach. Picking the right coverage at a fair price protects your business from financial setbacks.

The risks involved when it comes to cutting insurance cost

Reducing business expenses is important. However, cutting insurance costs too much can be risky. Inadequate coverage still leaves your business vulnerable to unexpected claims, property damage, legal disputes, etc, and just one of these can cost thousands.

While finding affordable coverage is important, this shouldn’t be prioritised over gaining comprehensive protection. Doing this ensures financial security and long-term stability, protecting your business from costly setbacks.