High Premiums Not Always a Reflection of Your Product

class of business

It might be how your business is classified

I get calls from start-ups, inventors, importers and patent holders trying to get Product Liability insurance for their product.  I’m often the sixth or seventh agent they’ve approached  and they are frustrated by the high premiums they’re quoted.

“Why doesn’t anybody understand how safe my product is and give me a fair premium?”

I feel their pain, but there is a simple explanation. But many insurance agents who don’t sell Product Liability insurance on a regular basis don’t know how to verbalize it:  It is not your product. It’s the class of business that’s keeping you from getting a lower premium.

What does this mean?

To simplify this, I’ll use an analogy of computers vs actual people. Standard insurance carriers are the computers and the non-admitted or non-standard  insurance carriers are the actual people.

The business model for small business standard insurance carriers is to efficiently deliver quotes so they can hold costs down and deliver insurance as inexpensively as possible. These “computers” have the ability to generate thousands of quotes a day. But an actual person (the non-standard insurance carrier) may be only to generate 12 to 15 a day.  The standard small business underwriter is more of a manager. It’s his/her responsibility to make sure your business fits neatly in the targeted class of business.

Refining your policy

It’s also important to understand that small business insurance policies are very broad and meant to cover the entire business. For example, suppose you are a small business that only sells artwork for nurseries and children’s rooms. Your product is not likely to ever cause any type of bodily injury or property damage that could lead to a lawsuit. But chances are that a standard insurance carrier will not provide coverage for your business.  The reason is simple: their policy is so broad that if you later decided to start selling baby cribs your policy would provide Product Liability for the cribs also. This is so even though the intent of the insurance carrier was to only provide coverage for baby art.

You’re wondering why the underwriter doesn’t simply put on the policy that only artwork is covered under the policy.  Well, think about it. The business model is efficiency and low price. An underwriter who stops to write a special endorsement that only covers children’s art isn’t available to process the other computer-generated quotes.

Call on the experts for help

If you sell a product within the sporting goods, health supplement, construction, energy, exercise, child, disabled, medical or elderly categories, it’s not your specific product that is causing you to pay a higher minimum premium. It’s the class of business.

The excess/surplus or non-standard insurance market exists for the specific purpose of covering risks that don’t fit neatly into the standard insurance market. They have the ability to tailor a policy for your specific products and business needs.

If you still have questions or would like to discuss tailoring your policy, call me at 800-622-7370. For a quote, click here.

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