Why do business insurance premiums increase after making a claim?

If you’re a small business owner, you know that managing costs is a consideration when it comes to your bottom line. One area that often raises questions is the impact of insurance claims on your premiums. 

Why do they go up after a claim? How much of an increase should you expect? From the amount of claims you make to the impact of inflation - different factors play a part in increasing premiums. We’ve laid out what businesses need to know in this guide.

Why do premiums increase? 

So, you’ve had to claim on your business insurance and you’re now facing higher premiums. It can feel like one thing after another, but why does this happen? 

First off, insurers aren’t out to get you — they’re in the business of managing risks. When you make a claim, it signals to them that there’s a higher chance you’ll need to make another claim in the future, even if what happened wasn’t your fault. Unfortunately, this means they might have to pay out again and to prepare for that possibility, they can raise your premiums.

How are premiums calculated? 

Contrary to what some might think, it’s not a random number plucked out of thin air. There are a few factors that go into calculating business insurance premiums: 

• Risk assessment — Insurers normally start with a risk assessment. They can look at your past claim history to predict the likelihood of future claims. If you’ve made a claim before, no matter how big or small, they might think there’s a higher chance you’ll make another.  
• Business type — The type of business you run can play a role in how much you’ll pay. Some industries are naturally riskier than others. For example, a construction company might have higher premiums than a tech consultancy due to the physical risk involved.  
• Coverage amount — How much cover do you need? The more extensive your coverage, the higher your premiums are likely to be.

What types of claims make premiums increase?  

Not all claims are created equal, and some can have a bigger impact on your insurance costs than others.  

• Property damage claims — Property damage claims can be one of the most common types of business insurance claims. Whether it’s from a fire, flood, vandalism or accidental coffee spill on someone's expensive equipment, property damage can be costly. 
• Liability claims — These types of claims can come from customers slipping and falling in your shop, or maybe a client suing you for not delivering what you promised. When you make a liability claim, insurers may see a potential pattern of risk. 
• Employee compensation claims — If an employee is hurt on the job and submits a claim, your insurance may be affected. These claims can suggest that your workplace may have some health and safety issues that need addressing.  
• Professional indemnity claims — This type of insurance protects you if you need to pay compensation to a client. For example, if you’re a consultant and a client claims your advice led to financial loss, that’s likely to be a professional indemnity claim.  
• Vehicle claims — Got a business vehicle? If it gets into an accident or is stolen, you’ll likely file a vehicle claim. These claims might lead insurers to think you or your drivers are a bit accident-prone, leading to an increase in insurance costs.  
• Business interruption claims — Business interruption claims are filed when you are forced to close and your business cannot operate due to material damage from a fire or flood, for example. A lot can be ‘on the line’ when it comes to these sorts of claims as they can involve a substantial loss of income.

How much does business insurance increase after a claim? 

This really depends and there are a lot of factors that go into this, including: 

• Type of claim — Insurers tend to weigh the risks differently based on the type of claim. A claim for a minor theft might not impact your premiums as much as a claim for a big liability issue. Property damage might be one thing, but a professional liability claim could suggest potential ongoing risks to your operations. 
• Claim amount — The amount you claim also plays a big role. If you’re claiming a few hundred pounds for a broken window, the impact on your premiums might be much less than if you’re claiming thousands for extensive water damage after a faulty pipe burst.  
• Frequency of claims — If you’ve had multiple claims over a short period, you could expect a more significant increase. Insurers might see a pattern of frequent incidents and, thus, a higher likelihood of future claims.  
• Your business type — The nature of your business also affects how much your premiums will go up. High-risk industries, like construction or manufacturing, might see steeper increases compared to low-risk sectors like IT, consulting or marketing.

What is the business insurance claims process? 

It might seem a bit daunting at first, but knowing what to expect during the claims process can make it a whole lot easier. Here’s a few pointers on what you need to know: 

Report the incident immediately 

First things first: report anything that happens to your insurer as soon as possible. Prompt reporting is key because it gets the ball rolling and shows your insurer that you’re on top of things. 

Delaying this can complicate the process and might even lead to your claim being denied. Make sure you have your policy number and any immediate details on hand when you make a call as you’ll need to provide this. 

Collect evidence and make a detailed report 

Next, gather as much evidence as you can. This means taking photos, getting witness statements and jotting down all details. Document everything that could support your claim — the more detailed you are, the more equipped you are to answer questions from your insurer. This helps them understand exactly what happened and how it impacted your business. 

Don’t forget to include timestamps and dates, and if possible, secure video footage or any other physical evidence that will back up your claim.  

Fill out a claims form 

Your insurer may provide you with a claims form, and you’ll need to fill it out with as much detail as possible. Accurate and comprehensive information here is important. 

Double-check for any errors before you submit. Remember, clarity is key - the more precise you are, the fewer follow-up questions you may need to answer.  

Submit any supporting documents 

Along with your claims form, you might need to submit any supporting documents. This could include: 

• Police reports 
• Medical records 
• Repair estimates 
• Any other relevant paperwork that supports your case 

The more information you have, the stronger your claim could seem. If you have email threads, text messages, receipts or anything else that could be relevant, include these too.  

Review 

After the inspection (if needed), the claims agent will review their findings and might contact you with questions or requests for more information.  

Once everything has been reviewed thoroughly, depending on your policy, your insurance might make a settlement offer or reinstatement. This could be on a ‘new for old’ basis which basically means anything replaced is in the same condition as it was before the event. Your policy conditions should contain the details on this.  

Keep in mind, it’s unlikely you'll be able to negotiate with your insurer. For example, when there is a claim for business interruption, there would likely be a review of relevant income expenditure details, but a business owner can’t challenge it if they disagree. 

Read more on how to make a claim on your business insurance.

Should you settle a claim without getting your insurance involved? 

When you’re busy running your business, the last thing you need is extra stress from insurance claims. That’s why handling an event privately isn’t a good idea and best left to your insurer. Not to mention the business insurance claims process can be complex and should be handled by a professional, especially if a supplier, employee or customer is making a claim against you as you may need to pay legal fees out of your own pocket. 

Sort your business insurance with help from Bionic 

Understanding why business insurance premiums after making a claim is a good idea for business owners. While it can be frustrating to see your premiums go up, knowing the reasons behind it can help you navigate the process more effectively. 

Get in touch with us today for support with your business insurance by starting a quote online or head over to our business insurance guides to find everything there is to know about sorting your insurance.