Why Insurance Companies May Audit Your Insurance Policy
When your business gets a commercial insurance policy, in many cases the premium assigned isn't final. It's actually an estimate. Insurance carriers assign a premium from an informed estimate, based on prior years of business activities. Of course with business changes estimates can be off. The purpose of insurance premium audits is to use actual sales and operations data to determine how accurate their guess was. The audit then determines the amount of the final premium. Audits are very common when it comes to General Liability, Liquor Liability, Workers Compensation and similar commercial/business insurance policies.
Ask your agent what the basis is for your premiums. Your exposure basis is the data that the insurance company uses to calculate its expected risk, and with that the premiums to cover that risk. Examples include payroll data, sales data, vehicle counts and/or mileage data, and the like. They may also ask for a description of your operations, information about the officers and owners of the company, job duties, names of subcontractors, certificates of insurance for subcontractors, and/or tax documents.
Make sure the figures for your audit are as exact as possible. If you asked up front exactly what your premium basis was, you shouldn't have to use estimates. If you do, or if the carrier feels they are not quite getting the full story, they will request further information, or they could wind up charging a higher premium to compensate for the underwriting uncertainty.
Workers Compensation Insurance
Since Workers Compensation policies are based entirely on payroll data, payroll audits are usually common. As long as companies keep good payroll records the audits are fairly simple and straightforward. The carrier can audit on a yearly, quarterly or monthly basis, and premiums will be adjusted up or down based on the last period's audit. In many cases, this auditing process has become fully automated.
Commercial Liability carriers usually base their premiums on sales levels. Occasionally, carriers will ask for some other data including square footage or payroll records especially during the early months of the policy period, or if businesses have expanded floor space.
Liquor Liability Insurance
Carriers vary, but premium basis usually includes gross sales, broken down between alcohol gross sales, non-alcoholic beverage sales and food sales, along with some operations information. Your insurance agent should be able to tell you at the beginning of the term what information to have available for the premium audit.
- When you apply for coverage, ask exactly what the premium basis is. This way, you know exactly what numbers you need to have on hand when it comes time for the premium audit, and the process should go quickly and smoothly.
- Keep track of time and payroll for different kinds of work, job categories, etc. This allows for the lowest workers compensation premiums that still provide protection for workers and the company alike. Include overtime.
- Get certificates of insurance for your subcontractors such as General Liability and workers compensation subcontractors.
- Ensure a responsible and informed individual is present and available for on-site audits.
- Restaurants should keep tip records.
- Inform your agent right away about any large changes to your payroll whether up or down.
At the end of a policy, term businesses could end up with a balance due, meaning a business has underpaid premiums for the year. However, if a business has overpaid on premiums a credit or refund is issued back to the business. For more information on how to control your premium audit ask your SIA Group Risk Advisor or call us toll-free at 800.682.7741.