What is an audit?
A Business Insurance Audit is a review conducted by your insurance company to verify that the premium you're paying matches the level of risk and operations your business actually has. It ensures that you're neither underinsured, risking significant out-of-pocket expenses in case of a claim, nor overinsured, where you might be paying more in premiums than necessary.
Common insurance policies impacted by audits
- Workers Compensation
- General Liability
- Commercial Auto (large fleet)
- Professional Liability
Workers Compensation Audits
Workers compensation audits are normal and customary and required by the governing bureau, such as NCCI, or a state-specific bureau like WCIRB. Audits are performed after the expiration or cancellation of the policy. During the audit process the auditor will collect information to determine that you have the proper class codes assigned to each employee and the correct “remuneration” (payroll plus bonus, commission etc…) for each classification.
If you are missing a classification or the payroll is not accurate the audit will change the classification and correct the audit. This can lead to an increase in premium if you are growing and had yet to report the increase in payroll. If there is a premium increase the audit will be expected to be paid in full. It's best you assign correct class codes in the beginning of your policy and update increases in payroll during the year to mitigate a large audit.
Common Information Requested for Workers Compensation Audits
- Payroll Summaries or similar reports
- Quarterly State Unemployment Report
- Payroll Tax Reports
- Quarterly Federal Payroll Tax Reports (IRS Form 941)
- Employee Job Titles & Job Descriptions
General Liability Audits
General liability audits are performed by the carrier after a policy has expired or been canceled for specific industries. Not all general liability policies are audible, usually, this is determined by the industry you are in and the type of policy you purchased. The carrier will ask for information that supports the initial underwriting data used to issue an insurance policy. This is often one of or a combination of gross revenue, payroll, subcontractor expense, sq ft, or factors. Audits are generally required to be paid in full. You should report changes during the year to your insurance agent.
Common Information Requested for General Liability Audits
- Profit & Loss
- Balance Sheet
- Check Registers
- Cash Disbursement Journals
- Subcontractor Costs and Certificates of Insurance