When it comes to fixed overhead costs, middle market companies are at a disadvantage. They can't scale down operations the way that a smaller company can, reducing the ratio between expenses and revenue, yet they aren't large enough to have economies of scale kick in and make operations more economically efficient either.

A big part of overhead is paying for commercial general liability insurance, which protects a company against third-party claims of injury and damage to property. General liability often also includes protection for personal injury or advertising injury.

Spending on liability protection is a necessary price to pay, but it's a steep price as well, particularly for midmarket firms. It is, however, an amenable situation, and companies can take action by following certain smart practices with an eye toward reducing liability-coverage premiums, and as a result, cutting back on overhead.

  • The most reliable way to keep premiums low is to prevent them from increasing. Insurance companies set rates based on a number of factors, including location, the likelihood of problems, and the average cost of an incident, but a company's own history is also vitally important. Claims drive up your future premiums, so undertake liability audits. Have professionals examine your premises and practices for potential issues and then make the necessary corrections. Also, include legal reviews of advertising and marketing communications to avoid possible liability. Prevention is far cheaper than correction.
  • Ongoing training programs can result in lower liability insurance costs, according to the Texas Department of Insurance. What you might save will depend on your business, the carrier, and the particulars of your coverage. Ask the insurance company or agent what exactly could help control costs. At the very least, expect to combine training with written safety procedures to show that your business is already a good risk and will continue to be so.
  • Insurance companies are like any other business. They're not anxious to make less money on a client, yet it's more expensive to find new customers than to retain existing ones. If your company has done business with the same insurance firm for a while, ask what discounts they can offer to make their rates more competitive.
  • Don't assume that the rate you have is the only one you can get. Put your business out there for insurance providers to bid on, and be sure to provide the detailed baseline coverage that you're looking for. Let insurance companies compete with each other and improve their pricing. Another possible approach to savings is going through a trade association. Often, large commercial insurance carriers have relationships with these organizations and will provide discounts to get access to a large number of potential clients. For example, the Organic Trade Association, a membership-based business association for the organic industry in North America, offers discounted liability and risk-management insurance through a partnership with prominent insurance broker HUB International.
  • If an incident happens despite your attempts to reduce risks, then consider whether to settle smaller issues privately. It's tricky to be sure that you're making the right decision because you're balancing an immediate cost with a potential one that could extend down the road for years, so you'll want to involve your lawyers and financial department to be sure that the trade-offs make sense for any given case.
  • An excellent point from About Money is to regularly review your liability insurance coverage. As your business changes, there may be operations or facilities that no longer need coverage. You might even find that old equipment or vehicles no longer in use are still covered. Make sure that all your workers and operations are correctly classified so that you avoid higher costs for assumed risks that don't actually exist.

How often should you review insurance policies? Let us know what you think by commenting below.

Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal, The New York Times Magazine Newsweek, the Financial Times Chief Executive Inc., and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter.