Insurance Premium Audits: What You Need to Know.

The annual premium for some insurance policies is based on the nature of your business and its risk exposure as quantified by a measurable factor, such as payroll, sales, costs, or the number of employees. At the policy’s inception, you are asked to estimate your designated exposure for the contracted policy period.  At the end of that period, the insurance carrier audits the actual exposure and business operations to determine your final premium. After the audit is complete, an adjustment is made to your initially estimated premium. Insurance policies with premiums subject to audit can include workers’ compensation, general liability, auto liability, and garage liability.

Insurance carriers utilize several different methods for conducting an audit. Smaller, less-complex policies may only require the insured to assemble and send the necessary information to the carrier or have the information available when a telephone auditor calls.

Larger, more complicated policies are handled by a field auditor who will schedule an appointment and visit your business. It is best to schedule and complete this audit as soon as possible after the policy has expired while the exposure information is still fresh and readily available.

Typically, an auditor will ask important questions about your business. If you cannot be present to answer questions, someone familiar with the specifics of your entire business operations should be available.

Typical Items Required to Complete the Audit:
• Payroll records, including federal 941 tax reports, state unemployment reports, and individual earnings records. Separate totals for bonuses, vacation, sick pay, and overtime should be kept when applicable.
• Employee records, including the number of employees and hours, days, or weeks worked annually.
• Sale journals, including all goods or products sold, rented, and/or distributed, as well as services, repairs, and installations. Sales or excise taxes collected separately and submitted to the government need to be identified to be excluded from the audit.
• Check register and cash disbursements showing subcontractors, material costs, and payments for casual labor.
• Income statements, including subcontracted costs used to determine the costs.
• Certificates of insurance showing the required limits of liability and indemnification language from subcontractors used during the policy period.

Keeping Good Records May Save You Time and Money
If you are eligible for allowable credits based on insurance classifications and rating rules, you need to provide the necessary records and details to take advantage of the credits.
It is important to remember that insurance carriers can impose monetary penalties and non renew insurance coverage for failure to comply with a premium audit.