Understanding and Preparing for a Premium Audit

You just received a phone call from someone who says they represent your insurance carrier and would like to set up an appointment to audit your business operations.  You’ve paid all of your premiums on time so what could they possibly want?

Many commercial insurance policies are based on the “best information” that the insured can provide at the time the policy is issued.   The purpose of the Premium Audit is to replace the “best information” used when the policy was written with “actual” business activity for the policy term.   In other words, we want to make sure we understand your operations and, if needed, adjust the premiums to accurately reflect them.

For smaller risks, an auditor may be able to gather the information they are looking for by way of a phone conversation with you.  Or, you may be asked to just fill out and return a simple form.  Some companies even offer an online version of this form for your convenience.   Some smaller risks may be required to provide nothing more than the total sales or payroll for the past year.   One, two, and done!

For larger risks, an auditor may prefer to visit your office and review your records with you.  This may take an hour or two of your time depending on the type of business and whether or not there have been any changes in your operations.  The auditor should let you know prior to your meeting, exactly what information they will need to review.   Having all requested information ready prior to the meeting will shorten the process.

What type of information might you be asked to provide?

Most businesses will need:

  • General Ledger
  • Cash Disbursements
  • Quarterly State and Federal Tax Returns

Some businesses may also be asked to provide:

  • Payroll Ledger
  • Certificates of Insurance for Subcontractors

Your agent should be able to assist you with any questions or concerns you may have about your audit.  And a word to the wise:  Good record keeping will be your friend! Have you ever had a premium audit?  How was your experience?

One Comment on “Understanding and Preparing for a Premium Audit

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