Instructional Guide: Exposure Reporting for Insurance Renewal

When renewing your insurance policy, accurate exposure estimates are crucial. These estimates, which may include revenue, payroll, subcontractor expenses, and other factors, determine your premium and help avoid surprises during or after the policy period. Depending on your policy type, the approach to estimating exposure varies. Below is a guide to understanding how to handle each scenario effectively.

Non-Auditable Policies

These policies do not require an audit after the policy period. Instead, the insurance carrier relies solely on the exposure estimate you provide upfront.

Key Points:

• Accuracy is Critical: The carrier won’t adjust your premium if your estimate is too high or too low.
• No Refunds: Overestimating exposure means you’ll pay a higher premium with no reimbursement.
• Verification May Be Required: The carrier may ask for supporting documents like financials to validate your estimate.
• Conservative, Not Hopeful: Provide realistic and slightly conservative estimates to avoid potential issues.
• Rate vs. Premium: Focus on your rate (usually a factor of your exposure; revenue, payroll, sub costs or other) rather than just the total premium, as this is a better reflection of any changes in cost.

Tip: Avoid changing your estimate after seeing your quote unless absolutely necessary. Frequent changes may raise red flags with the carrier.

Auditable Policies with Preferred Carriers

These policies are subject to audits after the policy period. Your premium adjusts based on the actual exposure (e.g., revenue, payroll, subcontractor expenses) reviewed during the audit.

Key Points:

• Conservative Estimates: Start with realistic, slightly conservative exposure estimates.
• Mid-Year Adjustments: Notify your carrier of any significant increases (15% or more) in exposure during the year. This helps mitigate large adjustments at audit time.
• Refund Potential: If actual exposure is lower than estimated, you may receive a premium refund based on the original rate.

Tip: Regularly monitor your exposure throughout the year to ensure timely reporting and avoid surprises.

Auditable Policies with Non-Preferred Carriers

Auditable policies with non-preferred carriers often come with stricter conditions and potential penalties.

Key Points:

• Be Extra Conservative: Provide the most accurate and slightly conservative estimates.
• Limited Refunds: Many non-preferred carriers do not issue refunds for overestimated exposure.
• Rate Increases: If your actual exposure exceeds your estimate by more than a threshold (e.g., 15%), the carrier may apply a surcharged rate to the excess amount. This can result in a significantly higher premium than anticipated.
• Proactive Reporting: Report material increases during the year to avoid penalties and mitigate surprises at audit time.

Tip: Accuracy and proactive communication with the carrier are key to avoiding excessive charges during the audit.

Final Recommendations

1. Start Conservatively: Estimate revenue, payroll, subcontractor expenses, and other exposures as accurately as possible without inflating figures.
2. Monitor Regularly: Track exposure changes during the year and report significant increases promptly.
3. Communicate Early: Build trust with your carrier by being proactive and transparent in your reporting.
4. Understand Your Rate: Focus on the premium rate (percentage) and not just the total cost. This ensures you understand how your exposure affects your premium.

By understanding your policy type and following these guidelines, you can minimize surprises, optimize your premium, and maintain a strong relationship with your carrier.