Why Insurance Companies may Audit your Business

Has your insurance carrier audited your company?  Are you wondering "Why is the insurance company auditing my business?"   As a business owner, do you have to comply with insurance company audits?

When you get a commercial insurance policy, in many cases premium assigned isn't final. It's actually an Business owners may wonder why is the insurance company auditing my business, and, must I comply?estimate. Your carrier assigns a premium based on an informed guess, based on your prior year business activities. Business changes, of course, and 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 your final premium.

(If you are in Massachusetts, have questions about an insurance audit, and are interested in speaking  to someone directly, or just need some options, you can click on the button below 24/7 and we will get back to you the next business day.)

I have some questions about my Business Insurance

At the end of the process, you could wind up with a balance due, meaning you underpaid premiums for the year, or you could wind up with a credit. This means you overpaid your premiums for the year and the carrier is either crediting or refunding your overpayment to you.

These audits are very common when it comes to General Liability insurance, liquor liability insurance, workers compensation insurance 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 your figures for the 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 Audits

Since workers compensation policies are based entirely on payroll data, payroll audits are very common, and if you keep good records, fairly simple. The carrier can audit on a yearly, quarterly or monthly basis, and your premium 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 Audits

Commercial liability carriers usually base their premiums on sales levels. Occasionally they'll ask for some other data including square footage or payroll data - especially during the early months of the policy period, or if you've expanded floor space.

Cargo/Freight Insurance Audits

Cargo insurance is generally based on shipping volume or overall valuation of goods shipped.

Liquor Liability Insurance Audits

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. (More about Restaurant Insurance)

Best Practices for an 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: General liability and workers compensation.
  • 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.

If you have any questions about Massachusetts business insurance or audits that you company is preparing for, please do not hesitate to contact your agent directly, or, call us at 617-846-5000, we would be happy to help.  

With offices in Danvers & Winthrop Massachusetts, Elliot Whittier Insurance has been awarded The Five Star Award of Distinction from the Massachusetts Association of Insurance Agents.  Elliot Whittier Insurance is also a Trusted Choice® agency and represents multiple insurance companies, so it offers you a variety of personal and business coverage choices and can customize an insurance plan to meet your specialized needs.  You can visit Elliot Whittier online at www.ElliotWhittier.com, email info@elliotwhittier.com, or call 800-696-3947

What to do Next?

Have us review your insurance policies and check that your limits are sufficient. Ask what the cost is to bump it up under higher limit scenarios.

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