Why Are My Premiums So High?

What every Product Liability insurance shopper wants to know

There is a primary reason most start-ups and small businesses don’t qualify for low minimum premiums for product liability. It’s because they don’t qualify to place with a standard or admitted market insurance carrier. As a result, they must be placed with an excess surplus lines insurance carrier.

Getting placed with a standard insurance carrier

What the trick to qualifying with a standard insurance carrier? Your business and product(s) must fit neatly into a predetermined class of business with which the admitted insurance carrier is familiar, has experience, and has created a specific class code so it can be rated online.  If your business fits in one of these predetermined classes, quotes can be generated online by one of our account managers. This usually takes about 10 minutes generate if the application is complete.

If your business or product(s) don’t fit into a predetermined class you must get your insurance from the excess surplus marketplace. You can expect to pay higher minimum premiums there for Product Liability. This is because instead of taking 10 minutes to complete an online quote, your product(s) and application must be individually reviewed by an underwriter. The underwriter then must take time to prepare a formal proposal.

The reason behind the difference

The difference is economics: one is more efficient and can generate the most return for the insurance company in the shortest period of time.  An online computer is capable of generating thousands of quotes in a single day. But a single underwriter may, on a good day, generate 12 to 15 quotes.

Why you may not qualify

The real question for start-up and small business owners is, “What are the reasons you would not qualify for  standard market quotes?”  Below is a list of the most common reasons:

1. Your product is high risk or your advertising makes claims that your product provides safety or reduces risk.
2. Your product is unique and doesn’t fit into a pre-existing product class that the admitted insurance carrier writes.
3. You are an outsourcer or importer that currently deals with or may deal with in the future a multitude of products. Standard or admitted insurance carrier policies are not set up to specify individual products by a business. They have to pick up coverage for all the products of a business. The concern is that a high-risk product could eventually get into your product mix. They would have to cover a claim for a product that is clearly not in their accepted product appetite.
4. You are a start-up company with owners and principles lacking experience in the business or products that you want to insure.
5. Your business has no formal loss history to show the standard or admitted insurance underwriter that you are a better-than-average risk.

One last thing…

Your product’s safety isn’t always a factor when trying to qualify for a standard insurance quote. It’s important to remember that the standard insurance carrier’s business model isn’t set up for individual underwriting of your products for Product Liability purposes.  Standard insurance underwriters often lack the technical knowledge to evaluate products. And they often consider their premiums too low to warrant the time and efforts of a thorough evaluation.

For more information on this topic or to receive a quote, please contact me.