At a recent insurance renewal meeting with a client they asked one of the more difficult and challenging insurance questions to answer about their professional liability, they had asked “what goes into determining my professional liability insurance cost?” As is the case with insurance there is never a definite answer so I created a list of the general factors that insurance companies use to evaluate to determine your professional liability insurance cost.
Things to Know About Professional Liability Insurance Cost
- Your Profession & the Services Offered: The cost you pay for professional liability insurance is determined by your profession and the unique characteristics of the services which you offer.
- Experience: Many underwriters equate less experience with greater risk. When I submit an application for professional liability insurance I include resume or a statement of qualifications for the ownership & key employees. Showing experience will play a key part in keeping your professional liability insurance cost down.
- Who Are Your Customers: Are your clients in aerospace, banking, government, entertainment, manufacturing? Who you provide your services to, whether individuals, small firms, large firms, or governmental agencies, will play a factor in your professional liability insurance cost.
- Your Business Location: The legal climate and market conditions in each state is different. Your location and where you provide your services impacts your professional liability insurance cost.
- Gross Revenue: The more revenue you generate the larger the insurance cost.
- Payroll: The more employees and independent contractors you employ the larger the exposure as more individuals are presenting work on your behalf.
- Policy Limits: The limits of liability that you choose and whether or not defense costs are included inside or outside the limit of liability will have bearing on your professional liability insurance cost.
- Deductibles: The deductible you choose will play a factor in your professional liability insurance cost. Deductibles can start out at $0 and go up to $50,000 and higher. Note when you choose a higher deductible the insurance company will want to review a balance sheet to make certain you have enough funds to cover the deductible if a claim were ever filed.
- Unique Wording & Exclusions: Many times coverage within a professional liability policy can be broadened or narrowed by attaching endorsements or amending the policy wording.
- Claims History: An insurance company will look at a window of 3-5 years in the assessment of your professional liability insurance cost. If you’ve filed claims the carrier will surcharge your policy based on the frequency and details of each claim.
Buying professional liability insurance is not as easy as buying business liability and business property insurance and make certain you don’t buy your professional liability insurance purchase on cost alone. Make certain you have confirm these five areas of the professional liability insurance that is offered to you before a purchase decision is made:
- Does the quote or declaration sheet include a “retroactive date” (effective date) for prior acts coverage coverage for acts that occurred prior to the policy period?
- How is the ‘Named Insured’ defined? Is coverage provided for all persons for whom your business legally responsible including independent contractors who work on your behalf?
- Is coverage provided for all services performed by the business?
- Are claim expenses included in the limits of liability?
- Is there a requirement to give notice to the insurance company of claims or potential claims?
This article is intended for informational purposes only and is not insurance advice or a substitute for consultation with a licensed insurance broker to address your particular risk or circumstance.