Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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small business insurance group

To make insurance affordable and worth the cost many small businesses have to join a small business insurance group. Large corporations are able to purchase insurance to mitigate the risk of loss in many categories.

The insurance industry caters to these large insurance customers and offers remarkable savings per employee because each client brings a natural mixture of risk in the large group.

Insurance rates are based on the perceived risk of loss from certain events. A large group of people automatically encompasses people who will make few claims to offset the people who will make a higher number of claims.

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Small businesses that purchase insurance independently will incur much higher rates than large corporations. One response to this reality is the creation of small business insurance groups that are created by the insurer to create large pools of insurance policy holders. Many small businesses are placed into the same group to create a similar insurance pool to the large corporation and thus be able to offer group insurance discounts to small businesses and their employees.

Small Business Category

Every state defines small, medium and large businesses with just a slightly different number of employees. The most common definition of a small business is one that has between 2 and 50 full-time employees on the permanent payroll. This designation is an important delineation because certain laws apply to this category and businesses in the other size categories.

Any company with the minimum number of employees, as defined by the state, must provide access to health insurance coverage. The method used by the employer is flexible in most states. Many employers do require the employees to contribute some percentage of the cost of the annual insurance premium.

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Small Business Insurance Group

Placing multiple businesses into a group insurance policy is an effective approach for reducing premiums. This approach is profitable for insurance companies because larger groups are easier to administer and less expensive to insure because the risk is reduced.

Just because an insurer is willing to create the insurance group does not mean that these groups are available everywhere. Many factors will prevent a small business group from forming, including:

State legislation – Certain states have determined that group insurance opens up the possibilities and reduces the cost burden on businesses. If a state has not taken the step to legalize insurance groups, the insurance

Small business - state legislation

companies cannot offer the group option in the policies that are sold in that state.

Insurance company – After a state legalizes the group insurance option, insurance companies must have the administrative processes in place to support the concept. Very large insurance companies can move quickly to bring this about, but newer insurance companies will require more time to offer this option.

Participant groups – Annual premiums are based on the perceived risk of having to pay claims. When multiple companies with similar profiles, for example small manufacturing firms, exist in one area, an insurance company is able to provide an accurate actuarial estimate of the cost of insuring a group of these businesses. Those groups are natural participants in small business group insurance.

Undefined groups – If similar businesses are grouped together, the premiums offered might be higher until some actual claim statistics can be gathered by the insurance company. Once the actual cost of insuring the group is known, the premiums can be adjusted in subsequent years.

Group Insurance

Coverage against loss can be purchased for many specialty categories that have not always existed. If an individual firm wanted to buy insurance for a rare risk category, the premium would be unaffordable unless a group had been created by the insurance company.

Small business insurance groups have been created in various states by insurers who offer the following types of coverage:

Health, dental, life insurance – Employee insurance rates can be offered at group rates when an insurance company creates a group of closely-related small companies. State regulations will determine how each group can be defined, but annual premiums will be greatly reduced if a small business can participate in a group.

Errors and omissions – Professionals who make a living by providing advice to clients are encouraged to purchase professional liability insurance, also called E&O insurance, to mitigate the risk of providing inaccurate or incomplete guidance to a client. Insurance companies are beginning to create groups for comparable professionals in closely related professions. Some of the professions who need this coverage are accountants, financial advisers, consultants and insurance agents.

Small business insurance Cyber Liability

Cyber liability – This newer category has become necessary because of the risk of identity theft that is always present against repositories that house customer information. If a computer system is attacked and breached, the owner of that system can be sued if the notification laws and privacy laws were violated. Insurers have discovered that creating small business insurance groups for this coverage enables more companies to acquire this coverage and reduces the risk to the insurer.

Director and officer liability – As small businesses grow, many will embrace the expertise from more seasoned professionals with business experience. Members of any company board and the company officers are wise to purchase professional liability insurance. Their role separates them from other professionals, but the concept of the coverage is the same. If their decisions cause extreme damage to the life of a company, this insurance can intercept the liability from the individual. Insurers have established insurance groups for these professionals.

Final Evaluation

Insurance companies that offer group insurance rates to groups of small businesses have responded to a market need that will never disappear. Business owners everywhere are looking for ways to reduce costs and retain their existing workforces. State legislation is the roadblock for many small businesses that are struggling with the annual cost of insurance for their employees and principals. Comparison between multiple insurance companies and even research about existing legislation will enable the business owner to make informed decisions and possibly influence future laws.

Save today on small business insurance by comparing quotes. Simply enter you zip code below to begin!