How to Prepare for a Business Insurance Audit

When you purchased your business insurance policy, your agent should have advised you that your policy will be audited at the end of your term. This audit is done to make sure the insurance company is collecting the appropriate premium for the risk that they are taking on by insuring your business.

The auditor will usually contact you initially by either phone or mail, and you are typically given a couple weeks or so to get prepared. You should be advised by the auditor of which records they will be examining, so you can have everything available when the audit begins. Generally, you are not allowed to withhold any requested records from the auditor. There is most likely a clause in your policy that states that by purchasing coverage, you are agreeing to the audit process.

If you fail to respond to your audit request or fail to produce the records that are requested, it could be very costly for your business. If your insurance company continues to insure you in this scenario, they will usually do their own estimates, which you can be sure will come down on the high side. This can result in a significant increase in premiums.

With a general liability policy, you may be asked to produce records that show your annual sales, the number of employees you have, and the payroll for each class of work you are doing. These may include contractors that you hired, such as carpenters, electrical workers, plumbers, and HVAC workers.

These are some of the general categories that most business owners can relate to, but inside these main categories are subcategories with more precise descriptions of what types of workers you have. You will want to have a system in place that allows you to accurately track this information, so you are ready when the insurance company requests it.

A workers’ compensation audit is a little more detailed, and you will be asked to produce information such as:

• The name of each employee
• How much each employee was paid
• The type of work the employee does
• The state(s) your employee works in (this will involve some extra work if your employee works in multiple states, but it can save you money as workers’ comp rates vary by state)

It is very important that you classify each worker correctly. Otherwise, you could be overpaying for your workers’ compensation insurance. For example, if you own a construction company and you have all of your workers classified as carpenters when some of them are office staff, salespeople, executives, and out of office workers, you will be paying higher workers’ comp premiums then you should, because your insurer will have everyone classified in the position with the highest risk of injuries. Be sure to have all of your workers designated in the correct positions so you do not overpay for your insurance.

Here are some tips to help your business insurance audit go more smoothly:

• Organize your Records Ahead of Time: Be sure to get all of the records your auditor has requested together and organized at least a day or two before your audit. If your accountant has some of these records, have them sent over to you, or if it is easier, arrange to have the audit at your accountant’s office.

• Have Insurance Certificates for all Subcontractors Available: If you have subcontractors working for you that are not covered by workers’ compensation, have copies of their insurance certificates proving that they have the required coverage. If you cannot prove that they are covered separately, you may be assessed an additional premium based on how much you paid them.

• Discuss your Records with your Accountant and Insurance Agent: In preparation for your business insurance audit, it would be a good idea to review everything with your accountant and your insurance agent. This will help ensure that you cover all of the important things that need to be done, so you are ready for your meeting with the auditor.

Contact an Independent Insurance Agent for Additional Help

Business insurance is a complicated product, and rates and coverages can vary widely from one insurer to the next. And you have to make sure to be ready for the end of term audit so you can avoid paying too much for your insurance. With this type of insurance, it pays to shop around to find the carrier that offers the best rates and coverages for your specific business.

At Balderson Insurance Agency, we have been helping provide businesses with the right insurance policies since 1996. We are an independent insurance agency, and we work with several of the top carriers in the state. Because we are not captive to any one particular insurer, we are able to shop freely and find your business the carrier and policy that best fits your needs.

If you have any questions about business insurance audits or anything else related to commercial insurance, give us a call and we will be happy to help you out.