Surviving a Commercial Insurance Audit

surviving-a-commercial-auditThe insurance audit is a process common to the insurance industry. Those new to the audit process are often anxious and confused. Just like taxes, a commercial insurance audit takes some planning in order to make things go as smooth as possible and eliminate additional premium surprises. To eliminate stress and help you survive the audit process let’s take a minute to review some common questions people have.

Who conducts the audit?

An auditor representing your insurance company. The auditor may be an employee of the company or an employee of an independent auditing firm.

Why is an audit necessary?

Premiums for workers’ compensation insurance and for general liability insurance are calculated based on estimates of exposure (payroll, receipts, sales, units, etc.) to be incurred during the policy period. An audit is conducted at the conclusion of the policy period to determine the actual payroll and receipts incurred during the policy term. Adjustments will be made to the premium based on the actual information.

What if my “estimates” are not accurate?

Estimates should be as close as possible to the actual amount of payroll and receipts incurred during the policy period. If the estimate is too low, you’ll receive a bill for the additional premium for the audit period and the current year. If the estimate is too high, you’ll receive a refund, usually a credit to your current policy.

Are there benefits for keeping good records?

Yes, detailed and properly–maintained records permit the auditor to complete the audit accurately and in a minimal amount of time. Organized records afford you the correct classification and rating of your operation while allowing any adjustments entitled to you.

Why is it important to secure copies of Certificates of Insurance for subcontractors?

Subcontractors who do not have adequate insurance may become the responsibility of the individual who hires them. For subcontractors who do not have proper insurance, there will be an additional charge to your commercial general liability and/or workers’ compensation premiums.

What does my insurance company do upon receipt of audit information?

When your Insurance company receives audit information, it is reviewed and compared with the classification(s) and estimates of exposure on which your policy was originally rated and issued. A determination is made if an adjustment to your classification, rating exposure or premium is necessary. If an adjustment is required, an additional premium or a refund in the form of a credit to your current policy will be processed. Note: When the audit results in additional or returned premium, the current policy’s estimates of payroll and receipts (sales) will be adjusted.

What should I do if I disagree with the audit?

Contact your Agent if you have any questions about the audit or audit procedure.

Tell us a story about your commercial audit in the comments below or ask us ANYTHING about a commercial audit so our experts can answer it for you.