In California, every small business needs to consider business insurance. While there are important coverages like general liability and a business owner’s policy (BOP) for California small business insurance, there are other policies to consider. Additionally, the Golden State requires certain policies, such as workers’ compensation for all businesses with one employee and commercial auto insurance for businesses with a dedicated vehicle.
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California Business Insurance Requirements
While not every type of insurance is required in the state, there are a few generally required coverages for small businesses and some industry-specific requirements to keep in mind.
Workers’ Compensation
In California, workers’ compensation insurance is mandatory for every small business. This applies to the business regardless of its size. Even if you have one employee, part-time or full-time, workers’ comp is required. This is true even if they are a family member.
There are some exemptions to this rule:
- If you are a business owner or a sole proprietor, workers’ comp is not required. However, some contractors, including heating, ventilation, and air conditioning (HVAC) and roofing, must carry workers’ comp even if they operate as a sole proprietor.
- If your company employs independent contractors, you do not have to provide workers’ comp for them. To determine employment status and whether workers’ comp does not apply, the state of California has developed an “ABC Test.” If an employer is going to classify an employee as an independent contractor, then the employer must prove all three conditions of the test are met. According to the Employment Development Department, these conditions are:
- The individual is free from the control and direction of the hiring organization in connection with the performance of the work, both under the contract for the performance of the work and in fact.
- The individual performs work that is outside the usual course of the hiring entity’s business.
- The individual is routinely doing work in an independently established trade, occupation, or business that is of the same type as the work being performed.
Even if the employee is classified as an independent contractor, workers’ comp is still worth considering as an optional benefit for the employee.
Aside from being required, it is helpful coverage for employees because of what it does. Workers’ compensation assists employees who were injured or became ill on the job. It assists with things like:
- Wage replacement
- Medical bills
- Death benefits for family members
- Liability protection for the employer
Additionally, most providers will also offer a return-to-work plan to help you and your employee get back to work.
Commercial Auto
If your business has a delivery vehicle or work truck or you have several semi-trucks, you will need to meet the minimum liability requirements required in California. California insurance liability minimums set by the Department of Insurance are $15,000 per person and $30,000 per accident in bodily injury. It also requires you to carry $5,000 for property damage.
A bit like a BOP, a commercial auto insurance policy can carry both liability and first-party coverage for occupants, pedestrians, vehicles, and property involved in a loss. It can also have some additional options, like roadside assistance.
General Liability
General liability insurance is not required statewide. However, local municipalities may require it—so check with the local government to see if you need to carry it. Also, some specific industries require general liability insurance for licensure:
- General contractors in California are required to carry a general liability policy with a minimum of $1 million and a $15,000 surety bond.
- Security guards are required to carry a general liability policy with a minimum of $1 million.
- Handypersons must have a general liability limit of $1 million to obtain a license.
- Daycares are required to carry general liability with a minimum occurrence limit of $1 million.
- HVAC companies registered as limited liability companies (LLCs) must carry general liability with limits between $1 and $5 million.
Additionally, to bid on a project, rent a space, or participate in an event, you will usually need a certificate of insurance (COI) showing you have general liability in the state.
This policy has broad coverage for your business from third-party claims and is focused on three areas:
- Bodily injury.
- Property damage.
- Personal and advertising injury.
However, California general liability insurance often includes additional coverages. Some examples are product liability for losses from a product you manufactured or helped distribute and insurance for the damage caused to a premise that your business rents.
Other Types of Small Business Insurance for California
Beyond the required coverages, there are other policies to consider, especially if it applies to your business’ nature of operations.
Type of Coverage | What It Covers |
|---|---|
Professional Liability | 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 |
BOP | Liability protection, first-party protection for your property and, usually, business lost income coverage |
Inland Marine | First-party coverage for tools and equipment that are stolen or damaged |
Commercial Umbrella | Excess liability coverage for claims that exceed the limits of your liability policy |
Cyber Liability | First and third-party coverage for losses related to data breaches, hacking, or other cyber-related losses |
EPLI | Coverage and defense against claims of wrongful termination or other harmful employment practices |
This policy is commonly referred to as errors and omissions (E&O) insurance and is more focused on the service sector. If someone claims you gave them bad financial advice or failed to deliver on a contract, this insurance is what you would turn to for help. If you own a financial planning or architecture firm in California, this is a policy you should consider.
This is first-party coverage, meaning it is for your property and not someone else’s. If you own a building, have a rented office space with furniture, or have a warehouse full of inventory, this insurance is something to consider. Depending on how the provider writes the policy, it may have coverage for tools and equipment—or you may need to insure that with a separate policy called inland marine (which we cover later on).
Losses are usually handled on a named-peril basis, and coverage is typically limited to the listed location. This means the types of losses covered are described in the policy and are only associated with the listed location. So the policy may say that fire, theft, or vandalism are covered losses, but wear and tear of the office coffee machine and the printer are not covered.
A BOP is a great option for California small business insurance because it combines general liability and commercial property. Usually, providers will include a third coverage called business income insurance.
Businesses typically with revenue under $5 million or fewer than 100 employees should consider a BOP. Plus, it is usually more affordable to bundle the policies than to purchase each one separately, and the BOP offers the convenience of having one policy for multiple types of coverage.
If you are a California business owner who works in an industry with tools or equipment, like a painter, contractor, or handyperson, you’ll need to look into inland marine. This is a first-party coverage similar to commercial property. However, while commercial property is limited to a listed location, inland marine insurance “travels” with the tools and equipment.
So, if you are working at a job site and an expensive piece of equipment is stolen, you would file a claim on your inland marine policy. Some providers will provide blanket coverage for tools and equipment, and others will have you list or “schedule” each individual item on this policy.
A commercial umbrella policy is an excess liability policy. If you work in a riskier industry and are concerned that the limits on your general or professional liability policy may be insufficient, a commercial umbrella policy can be purchased. The policy’s limits would not come into play until the limits of the other policy are exhausted.
For example, you have a general liability policy with a limit of $2 million and a commercial umbrella policy with a limit of $1 million. Once the general liability policy of $2 million is exhausted, you could file a claim for the additional $1 million in coverage from the umbrella policy.
Despite the “liability” part of the name, cyber liability insurance is similar to a BOP and is usually divided into first and third-party coverage. First-party cyber liability helps with the expenses you face from a data breach, which can include investigating and notifying anyone impacted.
The third-party coverage is a type of liability that can help protect your business if customers decide to sue you over negligence. This part of the policy can also help with fines and penalties from government or private entities.
An EPLI is important for protecting your business against claims of wrongful termination, hiring, and employment practices. Examples of an EPLI claim include sexual harassment and gender discrimination.
California Small Business Insurance Costs
Costs for California business insurance vary widely depending on the industry and size of the company. We obtained sample quotes from a variety of different brokers and carriers. All of them were for companies with three employees and with an annual revenue of $250,000.
Industry | Estimated Monthly Premium | Coverage Type | Coverage Amount |
|---|---|---|---|
Handyperson Service | $75 to $222 | General liability | $1 million per occurrence, $2 million aggregate |
Handyperson Service | $158 to $183 | BOP | $1 million per occurrence, $2 million aggregate $7,500 in property with a $500 deductible |
Restaurant | $85 to $267 | General liability | $1 million per occurrence, $2 million aggregate |
Restaurant | $207 to $250 | BOP | $1 million per occurrence, $2 million aggregate (includes liquor liability) Cost of building and kitchen equipment |
Landscaping | $135 to $180 | General liability | $1 million per occurrence, $2 million aggregate |
Landscaping | $307 to $841 | BOP | $1 million per occurrence, $2 million aggregate Cost of building and equipment |
There are a number of factors that providers consider when evaluating premiums. Some of these are:
- The geographic region within California, including the specific county
- Yearly revenue and payroll
- Claims history
- Risk management and training
- Business experience
- Prior insurance history
California is an expensive state for insurance companies. The high risk of natural disasters, like wildfires or earthquakes, coupled with the high cost of construction, has led to shrinking insurance options for Californians.
In 2023, State Farm and Allstate both announced they will no longer be writing new policies in California. Allstate has said that along with personal insurance, it will stop selling commercial insurance too. Given the large size of these insurers, the cost of insurance in California is likely to rise even more.
How To Get California Business Insurance
There are several options available when looking to get commercial insurance in California.
Provider
Insurance policies are underwritten and serviced by an insurance company or carrier. This is true whether you use a broker or an agent. There are providers that work directly with consumers and generate quotes online which you can then purchase, and there are others that take a multifaceted approach by offering insurance online and selling through agents. Finally, there are providers that only sell insurance through agents.
Agent
An agent works for the insurance company and helps connect the carrier with prospective policyholders. Some agents are captive agents and only sell insurance for one insurance company. Others are called independent agents and work with multiple companies. State Farm is a provider with many captive agents, while Liberty Mutual is a carrier that works with independent agents.
Broker
A broker is like an agent, except the broker works on behalf of the customer and not for the insurance company. Usually, a broker will work with many different carriers and provide insurance advice to the client while helping them find the best option for insurance.
California Small Business Statistics—Why Insurance Is Important
Small businesses are the backbone of California’s economy, and insurance protects those businesses and helps keep them running. From 1999 to 2019, small business employment grew by 25%, outpacing the national rate for the same period.
Consider the following facts about small businesses in California:
- It has 4.2 million small businesses
- There are 7.4 million small business employees
- Exports by small firms in 2020 totaled $58.3 billion and contributed 39.9% of total exports for the state
Additionally, California is the most populous state with a resident population of 39 million, and based on GDP, its economy is larger than many countries.
As its small business sector continues to grow, so does the need for business insurance. California is fourth in the nation for the risk of an employee suing their employer. If you have an employee who gets injured while on the job, there is a good chance they’ll hire a lawyer. Statistics show that 72% of injured employees in California end up hiring a lawyer.
Besides that, be it public or private self-insured programs, workers’ comp claims continue to rise. In 2022, private self-insured workers’ comp claims rose by 6%—the third straight year in a row with a rising claim count. Public self-insured workers’ comp claims rose by 35% during the same period.
These statistics show how important small business insurance is in California. It protects millions of business owners and employees and ultimately helps the Golden State economy to continue running and growing.
Frequently Asked Questions (FAQs)
Yes, all California-based businesses with one employee, regardless of employment status, are required to provide workers’ compensation.
Premiums vary, but a small restaurant can expect to pay $207 to $250 monthly for a BOP that includes liquor liability. General liability for a landscaper can range from $135 to $180 monthly.
In 2023, State Farm and Allstate announced they’d stop selling new insurance in California because of the increasing risk of natural disasters and the high cost of construction.
The state of California established the FAIR plan as an insurance option for property owners who are unable to find insurance through the traditional market. The FAIR plan is available throughout the state but is targeted at property owners in high-risk, especially wildfire, risk areas.
According to the Small Business Administration (SBA), California has 4.2 million small businesses. This number represents 99.8% of the total number of businesses in the states.
Because insurance is not regulated on the federal level, it is up to each state to determine how to handle insurance. The California Department of Insurance regulates insurance for the state.
If you are having an issue with your insurance company, including with a claim, you can contact the California Department of Insurance at (800) 927-4357. You can also file a complaint against your provider with the California Department of Insurance, which will then conduct an investigation.
Bottom Line
While the beautiful weather and abundant natural resources may have you singing, “I love you, California,” a claim causing financial loss to your business will quickly change your tune. While most insurance isn’t required statewide, California business insurance is an important part of a small business’ financial success.
The most essential policies are commercial property, workers’ compensation, and general liability. Simply Business is a broker that can help your small business find affordable coverage quickly. Get free, no-obligation quotes to find insurance for your business.
