What could make general liability expensive?
General Liability (GL) insurance is often described as “inexpensive per dollar of protection”—and that’s usually true. However, not all businesses pay the same rates. Two companies with similar revenue can see dramatically different premiums based on how insurers evaluate risk.
This article explains the main factors that drive GL pricing upward: business classification, payroll or revenue, claims history, operational risk, and contract-driven limit requirements. Understanding these levers helps explain why quotes vary—and where costs are truly coming from.
Business classification: the starting point of pricing
Every general liability policy begins with classification. Insurers group businesses by type of work to estimate risk.
- Low-hazard classes: offices, consulting, professional services with minimal public interaction.
- Moderate-hazard classes: retail, light service work, food service without alcohol.
- High-hazard classes: construction trades, manufacturing, contracting, work at heights, or heavy equipment.
Even small differences in how a business is classified can significantly affect pricing. “Contractor” is not one risk—roofing, electrical, and handyman work are rated very differently.
Classification doesn’t judge quality—it prices exposure.
Payroll and revenue: how insurers measure size
General liability premiums scale with exposure. Insurers usually measure that exposure using payroll or gross revenue.
- Payroll-rated classes: common in construction and labor-driven trades.
- Revenue-rated classes: common for retail, service, and sales-oriented businesses.
- Why it matters: higher payroll or revenue means more interactions, jobs, and opportunities for loss.
Underreporting payroll or revenue may reduce the upfront premium—but often results in audit bills later. GL policies are audited after the policy term.
Premium follows exposure. Growth almost always means higher GL cost.
Claims history: the most powerful pricing signal
Past losses strongly influence future pricing. Insurers assume history is predictive of future behavior.
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Frequency matters:
Multiple small claims often hurt pricing more than one isolated large loss.
Frequent claims suggest systemic issues rather than bad luck.
- Severity matters: Large bodily injury or property damage claims can restrict carrier options entirely.
- Time horizon: Most carriers review 3–5 years of loss history when underwriting GL.
General liability pricing rewards consistency, not perfection.
Operational risk and real-world practices
Two businesses in the same industry can pay very different premiums based on how they operate day to day.
- Work environment: residential vs commercial, indoor vs outdoor, controlled vs public spaces.
- Subcontractors: use of uninsured or poorly insured subs increases risk.
- Products and materials: hazardous materials, heat, open flames, or heavy machinery raise exposure.
- Safety controls: written procedures, training, and documentation improve underwriting outcomes.
Insurers underwrite operations—not just job titles. Describing work accurately can prevent mispricing or denial later.
Underwriting prices how losses happen, not just whether they happen.
Limit requirements driven by contracts
Many GL policies become expensive not because of losses—but because of contractual insurance requirements.
- Higher limits: $2M, $5M, or $10M aggregate requirements increase base premium.
- Umbrella policies: often required to meet contract limits above standard GL.
- Additional insured endorsements: per-project or blanket AI requirements add cost and complexity.
- Primary & noncontributory: endorsement-based wording frequently required by GCs and property managers.
- Waiver of subrogation: commonly required and sometimes priced.
Contract requirements don’t change risk—but they change who pays first and how much protection must be carried.
Many expensive GL policies are compliance-driven, not loss-driven.
Industry cycles and carrier appetite
General liability pricing is also affected by broader insurance market conditions.
- Hard markets: after heavy industry losses, carriers raise rates or exit classes entirely.
- Carrier concentration: fewer insurers willing to write certain risks drives prices up.
- Jurisdiction: litigation trends and state laws affect claim frequency and severity.
Sometimes pricing reflects the market—not your business.
Common questions
Why did my GL premium jump even without claims?
Growth in payroll or revenue, reclassification, higher required limits, or market-wide rate increases can all raise premiums without losses.
Is cheap GL always risky?
Not necessarily—but unusually low premiums often reflect limited coverage, exclusions, or incorrect classification.
Can I lower GL cost without reducing protection?
Sometimes. Accurate classification, clean claims history, and aligning limits with real contract needs can stabilize pricing.
General liability gets expensive when exposure grows
Classification, size, claims, operations, and contract requirements all compound to determine GL pricing. Understanding these factors helps explain why premiums rise—and where costs are structural versus avoidable. The goal isn’t the cheapest policy; it’s one that matches your actual risk and contractual reality.