If your business has Professional Indemnity insurance, you’ll no doubt have been asked to provide confirmation of the last completed year’s turnover.

But what is it, and why do insurers ask for it?

We take a closer look…

What is last year’s financial turnover?

Last year’s financial turnover, also known as revenue or sales turnover, refers to the total amount of money generated by your business from its operations over the previous fiscal year. It encompasses all the income your business has earned from delivering services before deducting any expenses.

This figure is a critical indicator of your business’ performance, providing insight into its market presence and operational scale.

How to calculate financial turnover

To calculate your business’ financial turnover, you’ll typically add up all your sales invoices from over the fiscal year. The basic formula is:

Financial turnover = total sales revenue

For instance, if you delivered £5 million worth of services over the last year, your financial turnover would be £5 million.

Why do insurers ask for your financial turnover?

Insurers require detailed financial information to assess the risk associated with providing coverage to your business. Here are the primary reasons why last year’s financial turnover is crucial for insurers:

Risk assessment and underwriting

Insurance companies need to understand the scale of a business’ operations to assess potential risks accurately. A higher financial turnover often indicates a larger volume of transactions and interactions, which could translate to higher risk exposure. For example, a company with a high turnover may have more employees, greater inventory, or more complex logistics – each introducing different types of risks.

Determining coverage limits

Insurers offer cover on a range of liability limits, allowing the insured to tailor their policies to match the needs of their business. This allows coverage to be neither insufficient nor excessively costly.

The financial turnover figure is a good guide for what constitutes an appropriate coverage limit. For instance, a business with higher turnover might require more extensive Liability coverage due to its larger operational footprint and the associated risk of higher claim amounts.

Premium calculation

Professional Indemnity insurance premiums are usually calculated by applying a rate against the previous year’s turnover.

The rate is a percentage based on various factors, with a heavier risk (such as a solicitor) attracting a higher rate than a low risk one (such as a life coach). These rates are then adjusted to reflect other aspects particular to the business, such as previous claims, the experience of the management and the types of clients worked with.

The rate is then applied against the turnover to arrive at the correct premium. Without a turnover the premium cannot be calculated, and an inaccurate turnover naturally leads to an inaccurate premium which can therefore cause problems when it comes to getting a claim paid.

Understand the jargon with RiskBox

Last year’s financial turnover is a fundamental metric that gives your insurer a comprehensive view of your business’ operational scale and financial health. When you provide detailed and accurate turnover information, you can expect more tailored and cost-effective insurance solutions – ultimately supporting the long-term stability and growth of your brand.

To streamline the relationship between you and your insurer, turn to a broker like RiskBox. We act like the bridge, handling communications and ensuring that both parties have everything they need. Reach out to our team to learn how else we can streamline coverage for your company.

Photo by Sarah Agnew on Unsplash