At renewal time, it’s tempting to focus on one number: premium. If it’s lower than last year, it feels like a win. But for many businesses, the cheapest policy on paper ends up costing the most in reality. That’s because premium is only one piece of your Total Cost of Risk (TCOR).

With rising claim severity, tighter underwriting standards, and increasing litigation trends across many industries, understanding TCOR is no longer optional. It is a strategic business decision.

Here’s what you need to know.

Premium Is Only One Component of Your Risk Costs

Most business owners think of insurance as an expense line item. But TCOR looks at the complete financial impact of risk on your organization. It typically includes:

• Insurance premiums
• Deductibles and self-insured retentions
• Uninsured losses
• Legal expenses
• Claims administration costs
• Internal time spent managing incidents

For example, imagine a company that reduces its general liability premium by $15,000 by increasing its deductible from $5,000 to $50,000. On paper, that looks like a smart move. But if they experience two mid-sized claims during the year, they may pay far more out of pocket than they saved in premium.

The real question is not “What is the premium?”
The better question is “What is our total financial exposure?”

Smart risk management evaluates the full picture.

Claims Frequency and Severity Directly Impact TCOR

Your claims history has a long tail. One bad year can affect pricing, deductibles, and carrier options for several renewal cycles.

Carriers closely evaluate:

• Loss trends
• Litigation exposure
• Workplace injury frequency
• Property loss patterns
• Cyber incident controls

Consider two manufacturers with similar revenues and similar starting premiums. One invests in safety training, formal return-to-work programs, and documented maintenance procedures. The other takes a reactive approach.

Over several years, the first company sees fewer claims, a stronger workers’ compensation experience modification factor, and greater negotiating leverage at renewal. The second company faces higher premiums, increased deductibles, and fewer carrier options.

The difference shows up not just in premium, but in lost productivity, management distraction, and cash flow volatility.

Reducing claims frequency and severity is one of the most powerful ways to lower Total Cost of Risk over time.

Risk Structure Decisions Matter More Than Most Realize

How your insurance program is structured directly influences TCOR.

Key structural decisions include:

• Deductible levels
• Self-insured retentions
• Policy limits and aggregates
• Umbrella and excess layering
• Contractual risk transfer strategies

For example, a contractor who tightens subcontractor agreements and consistently enforces additional insured requirements may prevent claims from hitting their own policy. That operational discipline can protect both limits and long-term pricing stability.

Similarly, a business that carries inadequate business interruption coverage might save on premium, but a single major property loss could create an uninsured income gap that far exceeds years of premium savings.

The goal is balance. You want a program that protects your balance sheet, stabilizes cash flow, and positions you favorably with underwriters. That requires strategy, not just shopping.

A Smarter Way to Look at Insurance

Insurance should not be treated as a commodity. It is a financial risk management tool. When evaluated properly, it protects capital, stabilizes growth, and supports long-term strategy.

At Hertvik Insurance Group, we work with our commercial clients to look beyond premium and evaluate the full risk picture. If you have questions about your business insurance program or want to better understand your Total Cost of Risk (TCOR), contact your Hertvik Insurance agent. We are here to help you make decisions that strengthen your business, not just reduce a number on a renewal proposal.