General Liability Classifications

How Businesses are Classified for GL Insurance

General liability classification codes assigned to your business will have a tremendous impact on your liability insurance rates and premium. Insurance companies will assign your class codes based on your industry and the type of work performed by your business. The rates developed for your business classification are applied to your gross sales, square footage or payroll at a rate per $1,000, depending on your industry. Liability insurance rating is based on gross sales for most businesses, except for construction, where it is often based on both employee payroll and sub-contractor payments.

There isn’t a standard rating system with general liability insurance. Insurance companies will either develop their own classification system or base their rates off of existing business classifications. The most common authorities for GL rating system include:

General liability insurance rating and classification varies by insurance company.

It’s important that a business is properly classified by their insurance company because of policy exclusions. GL classifications are based on typical risks assumed by common businesses and professions. If you engage in business activity outside of your classification there is a chance that your business would not be covered under your GL policy. This is because the policy agreement will exclude coverage for unrelated work. A business can be assigned to multiple GL class codes to allow for unique business operations. For example, a trim carpenter who also does floor installation should be rated with both classifications designated on their insurance policy.

Why Insurance Rates Vary by Industry

The easiest answer is because the risk of claims varies widely from one industry to the next. General liability insurance rates are based on tons of empirical data at a national, regional and state level. Insurance companies use this data along with their own internal performance data when determining their insurance rates for each of the liability class codes within their appetite. Some of the primary rating factors include a) the frequency of GL claims per industry, b) the severity of claims, c) the cost of claims and d) the regulatory (laws) environment of each state.

Risk Varies From Business to Business

Insurance companies often use the term hazard to separate types of risks from one business to the next. The hazards faced by a home healthcare provider are different than those faced by a bar owner. For example, if a patient falls and sustains a bodily injury while being assisted in their home, a home healthcare provider may be liable for the injuries. If you’re a bar owner, however, your greatest risk revolves around injuries or damage associated with alcohol consumption (see liquor liability).

It is not uncommon to see liability insurance rates vary significantly from state to state. Some carriers may offer general liability insurance to certain industries in some states, but not offer it in others. Rates may be higher for the same GL classification in California than in Missouri. This generally has to do with each state’s laws and the cost of settling or paying claims in each state. These decisions are typically based on the insurance companies’ performance measures affecting profit and loss as well as the state regulatory environment.
General liability rates vary by the state and other underwriting factors.


Contractors and General Liability Insurance

Construction general liability is extremely diverse and has its own set of unique challenges. There are almost as many GL classification codes for contractors as there are for all other types of businesses combined. This is due in part to the amount of construction-related businesses. Masonry Contractors, Electrical Contractors, HVAC Installers, Home Inspectors and Janitorial Services are just a few construction-related businesses.

The quality of coverage and the type of policies offered to these classes of business vary considerably for contractors. Many contractors end up with a claims-made policy as opposed to an occurrence policy, without being fully informed of the differences. Additionally, insurance carriers’ contractual language within the policies significantly affects the actual liability coverage available to the insured.

How to Buy General Liability Insurance at the Lowest Rates

The quick and effective answer to buying the most affordable general liability insurance is to shop your insurance coverage with more insurance carriers. Many small insurance agencies only represent a couple of insurance companies within their given market. The primary reason they don’t have access to more markets is rooted in the amount of new premium they can produce per carrier each year. The unfortunate truth is insurance companies want new business production and, therefore, they will only appoint agencies that can meet their minimum productions requirements.

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General Liability Shop.com is a national insurance agency, representing over 35 commercial insurance companies. We specialize in business insurance and are able to meet production requirements with a wide range of diverse insurance companies. We shop your general liability insurance with all of our applicable carriers to ensure you get the lowest GL rates possible for your business. When insurance companies compete for your business insurance, you win.

Classifying my Business for General Liability Insurance

Since every insurance company is unique in regard to classifying general liability insurance, your best bet is to understand what classification(s) they are using to rate your business insurance. As the policyholder, you have every right to question your class codes with your agent and your insurance carrier until you understand and agree your class codes are accurate. Keep in mind that your class code is important, both in terms of price and in regards to included coverage.

Our general liability and small business Specialists can help guarantee your class codes are accurate.

Finding the Best Price for GL Coverage

Let our business Specialists help you shop general liability insurance and more. Start your liability insurance quote online here at General Liability Shop.com or give our agents a call at 800-900-8657.