Not all commercial insurance policies require a premium audit, but for those who do, the audit plays a crucial role. A premium audit is a review of your business operations to ensure that the premium you’ve paid aligns with the actual risk exposure your business faced during the policy period. This process helps maintain accuracy in your coverage and ensures you are paying the correct amount based on your business activities.
Who Conducts the Audit? How to Identify an Auditor.
- In many cases, companies may not perform the audit internally. Instead, they often hire third-party auditors who specialize in this process. These auditors will collect and analyze data such as payroll records, sales figures, and other relevant information to determine your final premium. Hint: You may not recognize the number, but they will identify themselves with policy information.
What Does a Commercial Insurance Audit Include?
During the audit, the auditor will review specific financial records and operational details, including:
- Payroll records: To verify employee classifications and determine the correct workers’ compensation premium.
- Sales records: To adjust premiums for liability coverage that may be based on gross sales.
- Subcontractor details: To ensure proper classification and coverage for subcontractors.
- General ledger and financial statements: To confirm overall business activity and exposure.
The Purpose of an Audit
- The primary purpose of an insurance audit is to ensure fairness in premium calculation. When your policy was initially set up, the premium was based on estimates of your business activity. The audit reconciles these estimates with your actual data, ensuring you’ve paid accurately for the coverage provided.
Why Must the Audit Be Completed?
- Completing the audit is essential for maintaining your coverage and avoiding any potential issues. If the audit is not completed, it can result in serious consequences, including:
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- Additional Premiums: If your actual business activity exceeded the estimates, you may owe additional premiums to cover the increased risk exposure.
- Refunds: Conversely, if your business activity was less than estimated, you might be entitled to a refund or credit on your premium, ensuring you only pay for the actual risk.
- Non-Renewal: Failure to comply with the audit can also lead to your policy not being renewed, leaving your business unprotected.
What Happens If We Are Noncompliant?
- Noncompliance with a premium audit can have significant repercussions. Beyond potentially owing additional premiums, your insurer may choose not to renew your policy, leaving your business without coverage. To avoid these outcomes, it’s in your best interest to ensure the audit is completed promptly and accurately.
Please don’t hesitate to reach out if you have any questions or need assistance with the audit process. We’re here to help you navigate this important aspect of your insurance coverage.