An insurance audit can happen at any time. There are two lines of coverage that require an audit at the end of the policy term: Workers’ Compensation and General Liability. The insurance company(s) will request either a voluntary self-audit or an audit performed by an auditor representing the insurance company(s).
A Workers’ Compensation Insurance Audit
Workers Compensation policies are rated on estimated payrolls when originally written. The audit will determine the actual payroll/remuneration and any uninsured contractors paid during the policy term being audited. The following items will need to be furnished to the auditor at the time the audit is performed:
- Payroll Records – 941- Federal Tax Quarterly Reports; Individual Employee earnings with any overtime shown separately
- Provide detail explanation of each employee job duties to ensure proper classification
- Provide proof of all payments to all independent contractors and all subcontractors
- Provide copies of all Certificates of Insurance for both independent and subcontractors proving they have Workers’ Compensation in force during the audited time period or copies of the contractor exemptions filed with the state
- Provide a detailed description of your business operations
Once all of the above is provided – your insurance company will calculate, prepare and provide your final audit, which could result in a return or an increase in premium.
A General Liability insurance audit is usually performed by the insurance company to determine if all risk exposures have been captured. It will also ensure there is proper coverage for those exposures, as well as an adequate premium charged.
Depending upon the class code used to rate the coverage – the General Liability auditor will request the total annual receipts, the payrolls and any payments made to independent and/or sub-contractors for the audited policy term. The auditor will also require copies of the independent and/or sub-contractors certificates of insurance proving General Liability coverage was in place during the audited period.
Once all audit information is provided – the insurance company will calculate, prepare and provide you with your final audit – which will be either a return or an increase in premium.
If there is a significant increase in risk exposures for the previous term – your current policy term may be endorsed to reflect the previously audited term, and an additional premium will be due to the insurance company.
If you have questions or need help preparing for an upcoming insurance audit, contact one of our insurance agents at Wallace, Welch & Willingham today.