What is an insurance audit?
Why do you need to do an insurance audit?
An insurance audit is necessary because the premiums that you are paying for your insurance coverage are based either on receipt figures and/or payroll figures.
There is no way to determine what your actual receipts or payroll figures will be in a year. So the company bases your premium on what you estimate your payroll and/or receipts will be for the coming year.
The insurance company will need to determine what the final premium is at the end of your policy period. This will be done by performing an insurance audit.
The insurance audit process:
There are two types of insurance audits . A voluntary insurance and a physical insurance audit.
The type of audit that will be conducted depends on the dollar amount of premium and the type of coverage you have.
- If a physical audit is required then a representative from the company will contact you at the end of your policy term to set up an appointment. It is very important that you meet with the auditor when the appointment is arranged and that you have all information available. Have an accountant that handles your accounting matters? be sure to give the auditor their name and number when he calls to schedule the appointment.
- If a voluntary audit is selected, you will receive a form in the mail to complete and return to the company. Be sure to complete the form in its entirety and accurately. If you have an accountant then please forward the form to their firm to complete.
- When the company receives the audit, they will review it to determine your final premium. If the payroll or receipts figures are lower than the estimates you provided, you may receive a return premium. As long as your premium was over the minimum premium. On the other hand, if the figures are higher, the final premium will be more, and you will owe the company the difference. If the audit results in an additional premium , the company usually requires that to be paid in full.
To assist you with the insurance audit process, we have some suggestions of items that you may want to have handy.
- Federal and state quarterly payroll reports
- Individual earnings records
- Cash disbursement journal
- Sales and receipts journal
- Sub-contractor costs (if any) during the period
- Certificates of insurance for sub-contractors- this is VERY important. If you do not obtain certificates, the company will include the cost of work performed by them on your behalf as payroll. If you have a workers compensation policy- all subcontractors- regardless of if required by law to have coverage or not, must provide you a certificate of general liability and workers compensation.
- Prevailing wage job information
What types of insurance policies are subject to audits?
- Workers Comp Insurance Policies
- General Liability Insurance Policies
- Commercial Package Insurance Policies
- Busines Owners Policies (Commonly known as BOP policies)
Contact Huff Insurance
Still have questions on the insurance audit process? Please feel free to give our team a call at 410-647-1111.