What it is?
Insurance audits are typically performed on commercial insurance policies providing auto, general liability, garage liability, umbrella and workers compensation coverages. When these policies are issued, you are asked to pay an estimated premium. Estimated premiums are based on the nature of your business and your estimate of exposures (i.e. payroll, sales, etc.) for the policy period. Once your policy expires, an audit is conducted to collect information on actual exposures and operations and then determine the final premium.
Audits are to calculate the exact amount of premium you will be charged. Actual exposures and operations are determined by an audit. Even if your policy will not be renewed, policies are issued using estimated payrolls so the actual payroll needs to be known to determine if additional premium is due to the company or a return premium is due the policyholder.
How does it work?
We collect audit information from you shortly after your policy expires. Smaller, less complex policies may only require that you assemble and send the necessary information to us or have the information available when a telephone auditor calls.
Larger and more complicated policies are handled by a field auditor, who will schedule an appointment and visit your business. If you must change or cancel a scheduled appointment, please advise the auditor as far in advance as you can. It is best to schedule and complete this audit within 30 days from your policy expiration date.
It is important for the auditor to ask questions about your operations. If you cannot be present to answer questions, someone familiar with the specifics of your entire business operations should be available. If you direct us to your accountant, we will obtain as much information as possible from your accountant and contact you if we have additional questions.
Most of our audits only take a half hour or less, but audits of larger policies may take longer. Though the auditor will have a number of questions, you will not have to be directly involved during the entire audit if adequate records are available.
What you Need
The premium auditor will let you know which of the following records will be needed for your audit when the audit appointment is made.
These include payroll journal and summary, federal tax reports (941’s), state unemployment reports and individual earnings records. Totals should be kept for overtime when applicable.
These include the number of employees and hours, days or weeks worked annually.
This includes all goods or products sold, rented and/or distributed as well as service, repair and installation. Sales or excise taxes collected separately and submitted to the government need to be identified in order to be excluded.
Check Register/Cash Disbursements
These show subcontractors, material costs and payments for casual labor.
Certificates of Insurance
These show the subcontractors used during the policy period for construction, erection, repair for general liability and worker’s compensation insurance coverages.
It is in your best interest to request a certificate from a subcontractor prior to performing work rather than at the time of the audit. If no certificate is provided, you will be charged for subcontractors and their employees as if they were all employees.
These include subcontracted costs used to determine the cost of hired autos for commercial automobile audits.
How can you save money?
There are several ways you can save on premium dollars depending on the type of business and coverages you have. Not all of the following may apply to your particular business.
A single employee’s payroll can be divided except when the employee works in a clerical, sales, drafting or driving position. Proper records must be kept in dollar amounts that reflect work actually performed before a breakdown can be applied. Without adequate records, the entire payroll for the employee must be placed in the highest rated classification.
Tips declared by employees may be excluded from their gross payroll only if separately identified.
Certificates of Insurance
Have certificates available for the audit at your premises (or your accountant’s) to ensure that charges are not made unnecessarily. Certificates must cover the period when the subcontractor worked for you. This may require certificates covering two different policy terms for the subcontractor in some cases.
(For general liability coverage), employees with the sole responsibility of driving may often be excluded from chargeable payroll if their wages are shown separately. However, employees who perform other duties besides driving must be placed in the highest rated class describing their duties.
Cost of Hire
Commonly used on commercial automobile policies as a premium basis for hired auto coverage. This includes automobiles and trailers used under contract on behalf of or loaned to the named insured, which may include rental units as well as subcontracted hauling for the insured.