Business3 Things Small Businesses Must Consider When Selecting an Insurance Company

3 Things Small Businesses Must Consider When Selecting an Insurance Company

Starting a small business is an exciting endeavor. Besides the financial rewards, running a business lets you be your own boss. Probably, that is why the U.S. is home to 33,185,550 small businesses. 

The states with the most small businesses are Texas, New York, California, Florida, and Illinois. Even Connecticut has seen a surge in the rise of small businesses in recent years. Around 350,376 businesses are there in the state. 

While many people launch small businesses, not every company reaches the apex. Many businesses get sued by customers or employees. Yearly, 36% to 53% of small businesses are victims of lawsuits, whereas 43% are threatened with litigation. A liability suit costs about $54,000 at least. 

Bearing this expense out of pocket will take a hit on your finances and affect your reputation. You can protect yourself from unforeseen circumstances by purchasing business insurance. 

While deciding on a policy isn’t that challenging, picking an insurance provider is. We’ll discuss some key factors to consider when choosing an insurance company for your small business in this article.


Insurance companies must be licensed to do business in the U.S. Licensing in one state isn’t enough. They are required to seek licenses in every state they intend to operate in. 

Businesses– small and large– must choose insurers that are licensed to operate in their states. Choosing an insurance provider allowed to operate in your state adds an extra layer of security. In case a problem arises, you can rely on your state’s insurance department for help. 

You can verify whether an insurance company is permitted to do business in the state you reside in or run your company through the insurance department of your state. 

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An insurance company is said to be “domiciled” in the state that issues its primary license. When it seeks a license in another state after receiving from one, it is known as a “foreign” insurer. 

Domestic and foreign insurers are spread across the U.S. in all 50 states. Texas, for example, has 2,060 licensed insurers, both domestic and foreign. You can look up approved insurance companies on the Texas Department of Insurance’s website. Or, do a quick Google search to find a licensed insurer near you. 

Meanwhile, in Connecticut (CT), the number one location for the insurance industry in the world, there are a total of 1,394 domestic and licensed foreign insurers. You can search for licensed insurance agencies in CT  on Google to find the best one that meets your needs. Or, use the state database to find an approved insurance company. 

If you’re having a hard time finding a licensed insurance company, work with an independent insurance agency instead. The agents of independent insurance agencies represent multiple carriers, all of which are licensed. 

Brooks, Todd & McNeil assert that independent agents can help you determine the coverage you need, ensuring you’re adequately protected. They also ensure you don’t have coverage more than you need or are paying more than you should. 

Independent agents also compare policies for business owners to help them find the right fit based on current and future needs. 

Financial Strength  

A decisive factor in choosing an insurance company is financial strength. The financial strength of an insurance provider indicates its ability to pay the claims of policyholders. 

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As a small business owner, you’re buying an insurance policy for protection against financial losses that could arise due to lawsuits, natural disasters, and work-related illnesses or injuries. 

Your insurance policy won’t be of any use if the company can’t pay your claims due to a shortfall of funds. The whole point of purchasing insurance is defeated if the insurer doesn’t pay claims when you need them the most. This puts small business owners at significant risk. 

To avoid ending up in such a situation, look into the financial strength of the insurance provider. Five independent agencies–  Standard & Poor’s, Moody’s, Kroll Bond Rating Agency (KBRA), Fitch, and A.M. Best– assess the financial health of insurance companies. 

Companies receive high ratings only when they are in a position to meet their financial obligations. Low ratings are awarded to insurers whose ability to meet financial requirements is poor. 

Always go for companies with the highest ratings. Their risk of defaulting claims will be lower than those with low ratings. 

Claim Settlement Ratio

Another factor to consider when choosing an insurer is the claim settlement ratio. 

The percentage of claims insurance providers settle against the total claims received is known as the claim settlement ratio (CSR). This ratio demonstrates the insurer’s willingness to pay claims and its credibility. 

It’s a no-brainer that the higher the ratio, the more reliable the insurer is. Never settle for an insurance company with a low CSR. Always go for those whose CSR is high. 

To summarize, choosing the right insurance provider isn’t easy. However, thorough research and careful consideration can simplify the task. 

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Apart from the factors discussed above, consider the service quality of the insurer. Check customer reviews on platforms like Yelp and Google Reviews to understand if it’s dependable. Never buy an insurance plan in a hurry. Take as much time as you want so that you settle the deal with the best insurance provider. 

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