How Does High-Risk Business Insurance Differ by Industry?
Every industry faces unique risks, which play a significant role in determining insurance rates. Understanding the specific hazards associated with different sectors can help businesses secure the right coverage, mitigate these risks, and potentially lower their premiums.
In this article, Central’s Director of Small Business Underwriting, Anne Russo, explores some of the higher risks in various industries, how they impact insurance rates, and what to do to reduce exposure.
High-Risk Business Insurance: Contractors
Insurance companies may consider contracting a high-risk business because these professionals can face a wide range of risks depending on the nature of their work. According to Russo, the key factors insurance professionals consider when determining a contractor’s risk level include the type of projects they undertake, their level of experience, and how often they deviate from their core competencies.
For example: A plumber who regularly performs routine tasks like replacing toilets or fixtures in single-family homes is considered low-risk. However, the risk level increases significantly when a contractor ventures into unfamiliar territory, such as a plumber taking on a large-scale condo building project.
In another example, Russo explains, “a plumber who, due to inexperience, chooses the wrong fitting for a sprinkler system in a large condo building can lead to a costly leak that damages multiple units. This type of mistake can result in substantial financial losses and higher insurance premiums.”
Moreover, contractors who perform tasks that involve breaching a building’s exterior, such as installing doors and windows, face higher risks. Not sealing these installations properly can lead to water damage, mold growth, and expensive claims. Repeated tasks across multiple locations, such as contractors working on numerous homes in a subdivision, can further increase risk as each job suffers the same failure.
How to Mitigate Your Risks as a Contractor
To lessen risk exposure, contractors should stick to their areas of expertise and avoid taking on projects that require skills they are not fully trained in. Additionally, thorough training and consistent adherence to industry standards can help prevent costly mistakes. Proper documentation and regular audits of completed work can also reduce the likelihood of claims.
Learn more: Loss Control Tips for Construction Companies
High-Risk Business Insurance: Retail
In the retail industry, risks vary widely based on product type and business model. For example, a bookstore selling new inventory is considered low risk from a liability and property standpoint. However, used bookstores or antique shops with cluttered, narrow aisles pose a higher fire risk due to increased flammable material and difficulty containing a fire.
Retailers that sell products under their own label, such as health food stores or cosmetics shops, take on additional liability risk. “If a product causes harm—like a topical cream that results in a rash—the liability often falls on the retailer, not the manufacturer,” Russo says. “This risk is particularly high for products applied to or ingested by customers.”
How to Mitigate Your Risks as a Retailer
Retailers can lower their high-risk business insurance risk by maintaining organized, clutter-free spaces, especially in stores with a high fire load like bookstores. Those selling private-label products should ensure strict quality control and consider additional liability coverage. Implementing safety protocols and educating employees on proper risk management practices can also help prevent incidents.
Learn more: Furniture Store Insurance: The Five Policies You Need
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High-Risk Business Insurance: Restaurants
The restaurant industry is fraught with various risks, ranging from food safety issues to operational hazards. For example, barbecue restaurants that operate smokers outside the building face increased fire risks, especially if the smoker is too close to the structure and left unattended at night. In a fire, if no one is present to intervene, the damage can be extensive and costly.
Buffet-style restaurants pose another set of challenges. The self-service nature of buffets makes it difficult to control food safety, increasing the risk of food-borne illnesses. Additionally, restaurants that offer “cook at your table” experiences, such as Japanese steakhouses, are considered higher risk due to the presence of open flames close to customers, including children.
Recommended Mitigation Strategies
To mitigate these risks, restaurants should place smokers at a safe distance from the building and properly monitor them. Regular maintenance of cooking equipment and strict adherence to food safety protocols are essential in preventing fires and contamination. Additionally, restaurants looking for high-risk business insurance can invest in advanced safety training for staff and install appropriate fire suppression systems.
Learn more: How Much Does Restaurant Insurance Cost?
How Do Risks Affect Insurance Premiums?
Industries with higher risks, such as construction, retail with private labels, and restaurants with hazardous operations, will naturally face higher premiums. Insurance carriers assess risk based on various factors, including the likelihood of a claim, the potential severity of a claim, and the safety measures a business has in place.
“Contractors with extensive experience and a track record of successful projects, for example, are likely to receive lower rates than those new to the business or who frequently take on unfamiliar tasks,” Russo says. “Similarly, retailers that sell new inventory and follow strict safety protocols will generally have lower premiums than those selling used goods or private-label products.”
Four Ways to Lower Premiums Around High-Risk Business Insurance:
1. Invest in Training: Regular employee training on safety protocols and industry standards can reduce the likelihood of accidents and claims.
2. Maintain Accurate Records: Keeping detailed records of operations, incidents, and safety measures can help demonstrate to insurers that the business is proactive in managing risk.
3. Implement Safety Measures: Installing fire suppression systems, securing hazardous equipment, and ensuring compliance with safety regulations can lead to discounts on insurance premiums.
4. Choose the Right Coverage: Work closely with an insurance agent to select coverage tailored to the business’s risks. Central also provides a wealth of resources, including safety bulletins for policyholders, such as those tailored to restaurant safety.
Understanding the specific risks associated with different industries is crucial for businesses looking to secure the right insurance coverage. By identifying potential hazards and implementing mitigation strategies, businesses can protect themselves from financial losses and potentially lower their insurance premiums. Whether you’re in construction, retail, or the restaurant industry, taking a proactive approach to risk management is key to long-term success and stability.
The Central Difference
An insurance policy is essentially nothing more than a promise to pay for covered losses that occur to your assets. At Central, we take this promise seriously, from the minute you accept the policy to the moment a loss occurs and beyond. We will work with your independent insurance agent to meet your high-risk business insurance needs and provide you with continuous quality service as long as you are a Central policyholder.
Contact your local independent Central agent for more commercial insurance details or a customized quote for your business.
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