Arizona is home to five different climate zones, two time zones, the Navajo Nation, the Grand Canyon, and a healthy economy driven by small businesses. Small businesses are a key part of employment, taxes, and production in Arizona. Small business insurance in Arizona is an important part of the economy both in its contribution to the overall product and employment and insuring over 650,000 small businesses.
Arizona Business Insurance Requirements
While healthcare is federally regulated, property and casualty insurance has no direct federal agency or law that regulates the industry. So, every state has its own department that oversees insurance and creates specific requirements. Regarding Arizona business insurance requirements, two departments in Arizona oversee it. One is the Arizona Department of Insurance. The other is the Industrial Commission of Arizona. The Industrial Commission oversees workers’ compensation in Arizona.
Workers’ Compensation
Workers’ compensation is one of two required business insurance coverages in Arizona. In Arizona, any business with at least one employee is required to provide workers’ compensation insurance.
Workers’ comp is an important type of protection that helps employees. It does so if the employee becomes injured or ill because of their work. In Arizona, workers’ comp will help pay the medical bills, training, and therapy to return to work as a form of wage replacement. In AZ, the wage replacement is about 66% of the actual wage of the injured employee. The policy includes a $5,000 death benefit available to immediate family members.
This policy is also helpful for the employer: when the affected employee receives compensation, the employer is then given liability protection from any lawsuit by the injured employee.
One important difference for Arizona workers’ comp is that the coverage is “no-fault.” This means that the injured employee is entitled to workers’ comp regardless of who or what caused the injury.
In certain scenarios, organizations must offer workers’ comp to volunteers. For example, volunteer first responders like a volunteer fire department but have workers’ compensation provided to them.
Domestic servants and independent contractors are exempt from the requirement.
If you are a sole proprietor, take a look at our quick guide to workers’ compensation for self-employed individuals, where we explain the costs and best insurance carriers.
Failure to be compliant with the law can result in a penalty of thousands of dollars. If an employee is injured and it turns out your business is out of compliance with workers’ comp, the state can come after your business for reimbursement on all bills and then fine the business, too, for not being compliant.
Workers’ comp is available in Arizona through private insurance companies and a state-run system.
Commercial Auto
There are two types of Arizona business insurance requirements. One is workers’ comp, and the other is commercial auto insurance. The required minimum limits are as follows:
- $25,000 bodily injury coverage per person
- $50,000 bodily injury coverage per accident
- $20,000 property damage
These limits are very low, and any business needs to consider its assets vs insurance. If a serious accident happens and your business is at fault, the other party can forgo insurance and go after the assets if the limits are insufficient for the loss. $20,000 for property damage is very low. This includes repair to the vehicle or property, roadside cleanup, rental car, and, if the vehicle is a total loss, the cost of totaling the vehicle out.
Arizona has special requirements for anyone who drives a taxi, limousine, or delivery service. Importantly, this service is defined broadly as anyone who has accepted a request to drive someone through any communication (think an app) and is carrying a passenger. Translation: if you drive for Uber, Lyft, or some other service like that, then you must carry the following limits:
- $250,000 in liability coverage
- $50,000 per person in uninsured coverage
- $75,000 per accident in uninsured coverage
- $25,000 bodily injury coverage per person
- $50,000 bodily injury coverage per accident
Commercial Vehicle Insurance
Arizona does not have separate coverage limits from what is federally set for commercial vehicles. This means that any type of commercial truck will need to make sure they’re compliant with Federal Motor Carrier Safety Administration (FMCSA) requirements.
Arizona Commercial Liability Insurance
There is no statewide requirement for general liability insurance in Arizona. That said, nearly every government organization will require proof of insurance to work with it or bid on any job. Even though there is no statewide law requiring liability insurance, licensing boards do have their own standards. Some of the industry requirements in Arizona are:
- Daycare: Daycares in Arizona must carry a general liability policy with a $1,000,000 liability limit per occurrence with a $2,000,000 aggregate. The general liability must also carry $50,000 of damage to rented premises and $500,000 in abuse and molestation coverage. The certificate must state that sexual abuse/molestation is included in the coverage.
- Residential general contractors: Contractors who work on residential projects must carry a general liability policy with a minimum of $500,000.
- Commercial general contractors: If a contractor works on a commercial project, they must carry a general liability policy with at least $1 million.
This list is not exhaustive. Check with the licensing board for your industry. When bidding on a job, you’ll have to prove what type of insurance you have and how much of it you have purchased. This is done through a document called a certificate of insurance (COI).
Arizona commercial liability insurance is just like general liability elsewhere. The coverage is broken down into three areas of protection for your small business.
- Bodily injury
- Property damage
- Personal and advertising injury
Typically, most insurance providers in Arizona will include additional coverages like medical payments, premise liability, and product liability insurance in their general liability policy.
Other Types of Small Business Insurance for Arizona
Arizona business insurance requirements are straightforward: commercial auto and workers’ comp are required. But, just because coverage isn’t required by law doesn’t mean your business doesn’t need it. Here are the most common types of business insurance policies to consider:
Type of Coverage | What It Is |
|---|---|
Professional Liability | Covers claims of financial harm or loss as a result of advice or failure to perform a contracted service made by a third-party |
Commercial Property | First-party coverage for property owned, typically fixed property or contents |
Business Owner’s Policy (BOP) | A combination of general liability, commercial property, and usually business lost income |
Inland Marine | First-party coverage for tools and equipment |
Commercial Umbrella | Excess liability coverage that provides additional limits |
Cyber Liability | First- and third-party coverage for losses related to data breaches, hacking, or other cyber-related losses |
Employment Practices Liability Insurance (EPLI) | Protects small business owners from claims of wrongful termination or other harmful employment practices |
There are two types of liability: general liability and professional liability. General liability addresses tangible losses, like a customer slipping and falling in a business. Professional liability insurance offers your business protection for negligence related to giving advice or adhering to a contract. Hence, another common name for it is errors and omissions insurance.
Industries in the service sector or that provide advice as a service should consider professional liability, making this important for Arizona since that industry has the most small businesses in the state. If you’re in the service sector, then be sure to check out our guide to the best professional liability insurance companies to compare your options, along with their costs, features, and financial ratings.
Unlike general liability, professional liability insurance will usually have a deductible.
There are lots of different types of AZ small business insurance policies. Liability is protection from third-party claims, and commercial property is for the property that your business owns. It is a first-party coverage for a business owner who:
- Owns a building
- Rents office space with furniture
- Has a warehouse full of inventory
Keep in mind that when discussing coverage for your property, it is almost always limited to the specific listed location on the policy. Please note that commercial property is first-party coverage, so it carries an insurance deductible.
Most businesses need more than one coverage, and a great option for a small business is a business owner’s policy (BOP). A BOP combines general liability and commercial property; insurance carriers usually include a third coverage for lost business income.
A BOP is a great option because it is convenient: one policy provides multiple types of coverage. Buying a BOP is usually more affordable than buying separately from all of those policies. But a BOP isn’t for every small business. This policy is typically reserved for businesses that have $5 million in revenue or less and fewer than 100 employees.
For a deeper dive into the differences, check out our BOP vs general liability insurance comparison, which breaks down their costs and coverages.
Commercial property insurance is a type of coverage and also a category of small business insurance. Many AZ small businesses may only need inland marine insurance. This is a first-party coverage for those who work with tools or equipment, such as painting, contracting, or home repairs. Some providers will provide blanket coverage for tools and equipment, and others will have you list, or “schedule,” each item on the policy with their value.
One major difference between inland marine and commercial property insurance is that inland marine coverage “travels” with the tools and equipment, while commercial property insurance only covers fixed property at a cited location.
An umbrella policy is a type of excess liability policy. It is a great option for businesses that work in riskier fields. It comes into play when the liability policy becomes exhausted. It also can help when bidding on a project by showing that your business has additional limits of liability.
In an age where every business, no matter how small, has a digital component, cyber liability insurance has never been more important. Data breaches, hacking, cybercrimes, and ransomware are the well-known risks businesses face. But don’t let the name fool you, as cyber liability is divided into first- and third-party coverage.
- First-party cyber liability coverage: Helps with the expenses you face from a data breach, including investigations and notifying anyone impacted.
- Third-party cyber liability coverage: Helps protect your business if customers decide to sue you over negligence. In the event of a data breach, your business may be subject to fines and penalties from the government or private entities. This part of the policy can also help with those fines.
EPLI stands for employment practices liability insurance. While this type of insurance may not be as well known, it is still an important one for small businesses to check out. Now, this one would only be important for small businesses with employees because it handles claims of wrongful termination, hiring, and employment practices and provides coverage for sexual harassment and gender discrimination.
Arizona Business Insurance Costs
Insurance is a contract. The insurer agrees to pay for certain losses, and you agree to pay your premium. How much the premium costs will vary because of several factors.
In our research for this guide, we obtained various sample quotes from different brokers and carriers. All of the quotes were for companies with three or fewer employees and annual revenue under $250,000.
Industry | Estimated Monthly Premium | Coverage Type | Coverage Amount |
|---|---|---|---|
Restaurant | $110-$210 | General liability | $1 million per occurrence, $2 million aggregate |
Photography Service | $15-$30 | BOP | $1 million per occurrence, $2 million aggregate, and $5,000 in equipment coverage |
Interior Painting Company | $47-$70 | General liability | $1 million per occurrence, $2 million aggregate |
Retail Store | $23-$110 | General liability | $1 million per occurrence, $2 million aggregate |
Some of the variables that providers take into account when calculating your premium include the following:
- The geographic region within Arizona, including the specific county (for example, insurance will be higher in Seattle versus in a business in Walla Walla)
- Yearly revenue and payroll
- Claims history
- Risk management and training
- Business experience
- Prior insurance history
If you find the cost of business insurance is too high, there are steps you can take to save some money. Learn the ways to save money on business insurance.
How to Get Arizona Business Insurance
There are three ways to purchase small business insurance in Arizona. You can do so from a provider, agent, or broker.
Confused? Check out our insurance broker vs carrier comparison to learn more about these options and when to use them.
Arizona Small Business Statistics: Why Business Insurance in AZ Is Important
While Arizona may be known for its blue skies, clean air, and great hiking at the Grand Canyon, there is more to it than that. Phoenix is a major hub for self-driving car training, and a number of insurance companies use Phoenix as their west coast office. Its diverse economy is overwhelmingly composed of small businesses.
Let’s take a look at these data from the 2023 Small Business Profile:
- There are 650,151 small businesses in Arizona. This number represents 99.5% of all businesses there.
- These small businesses provide employment to 1.1 million people.
- While small businesses comprise 99.5% of all businesses, they provide employment to 42.2% of all employees.
These small businesses represent a growing number of new employers in Arizona. Between March 2021 and March 2022, there was a net increase of 7,171 small businesses. AZ small businesses grew employment for the state by 35.9% from 1996 to 2020. This figure is above the national average.
Many of these small businesses have no employees. In fact, in Arizona, 537,216 of the total small businesses have been classified as having no employees.
This makes it pretty surprising that these businesses have such impressive export power. In 2021, 89.4% of all businesses exporting goods were small businesses. Small businesses in AZ exported $15.4 billion in goods that year.
As is the case in most states, the largest industries without employees are classified as professional, scientific, and technical businesses. Real estate, rental, and property management are the second largest, with transportation and warehousing coming in third.
The variety of these businesses shows how small business insurance is not one size fits all. For example, the first industry on this list will need professional liability insurance, while the second one needs commercial property insurance and some form of liability. The most important coverage for the third business is commercial auto insurance. And of course, all of them, if they have only one employee, will need workers’ comp.
Arizona’s growing economy, which is ahead of the national average, is one built on the hard work of small business owners. Many of whom are solopreneurs.
Frequently Asked Questions (FAQs)
Yes. In Arizona, any employer with one employee must provide workers’ comp insurance. The Industrial Commission of Arizona oversees workers’ comp and can fine a company that is not compliant with this rule.
No, general liability is not required by the state of Arizona. However, certain industry licensing boards, like contractors, do require different types of liability depending on whether your business does residential or commercial work. If your business works with a public entity, you will likely have to carry general liability.
Yes, commercial auto insurance is required in Arizona. The minimum limits are $25,000 per person, $50,000 per accident in bodily injury, and $25,000 in property damage. However, there are separate requirements with higher limits for anyone who drives a taxi or livery service including for Uber, Lyft or other rideshare platforms.
The cost of insurance will vary depending on the size of the business and the industry it is involved in. A small fast food joint in Phoenix may expect to pay between $110 and $210 a month for general liability. A photographer could pay between $15 and $30 monthly for liability and equipment coverage.
According to the Small Business Administration, there are approximately 655,151 small businesses in Arizona, which represents 99.5% of all businesses.
To file a complaint, you will need to visit the Arizona Department of Insurance and Financial Institution’s website. You can only file an insurance complaint online. If you need to follow up on the complaint, you can call 602-364-2499. It is only open weekdays from 9 a.m. to 4 p.m.
Arizona is currently the 14th most populous state in America, with a population of 7,431,344, according to the US Census Bureau.
Bottom Line
Whether you work in the hospitality industry in Glendale, sell hiking equipment in Phoenix, or provide a consulting business in Tempe, Arizona is a beautiful state filled with small businesses that range in size from no employees to as many as 500. These small businesses contribute to the growth of the economy, and the healthy state employment and Arizona business insurance are the invisible glue that helps bind all of this together by keeping the businesses open and running when they face a loss.
Simply Business understands the importance of insurance and makes it simple and affordable to purchase online. In 10 minutes or less, you can compare quotes in real time from top providers, modify coverages, and purchase a policy online or call to speak to one of its agents.
