Audits are common with general liability, workers’ compensation, liquor liability, commercial and other business insurance policies. This is because when your commercial insurance policy is drafted, it’s based on an estimated risk exposure based on sales volume, number of employees and contractors, locations and common industrial risks. In most cases, the premium for your insurance isn’t a final number and fluctuates based on year-end actual numbers. The audit is an important process that determines the final premium.
Most cringe at the thought of an audit, but did you know there are several ways that an audit benefits you and your business? Let’s take a look at why you can look forward to your audit.
Changed mindset. Audits aren’t always spurred by something negative. They don’t have to mean that a business has done anything wrong or that the IRS is asking to dig through your finances. In fact, this is a positive thing in the insurance world! A general liability insurance audit is completed to thoroughly examine your business’s payroll and risk exposure and to check for any changes over the year in how much risk was actually incurred. An audit may also be required for your workers’ compensation and commercial property insurance coverage.
Ensures proper coverage. During the first policy term or at the end of the coverage period, the insurer will request an audit to adjust your premium based on the most accurate sales numbers and earnings. With how much a business can change year to year, this helps to ensure that you have the right amount of coverage as you grow and change. It can also spot gaps in coverage or new exposures that appeared during the year that weren’t seen before, helping to make sure you are covered should the unexpected arise.
It can save you money. The initial insurance premium estimate can be off; remember, the purpose of insurance premium audits is to use your actual sales and operating data to determine the true picture of risk. The audit can save you money, as your premiums can decrease if sales volumes, staffing or other adjustments to predicted exposure change and less coverage is needed. You may also be entitled to a refund or a credit on the overquoted premium at the start of the year.
Best practices already involve accurate record keeping in your operations; this is exactly what will help your insurance audit go smoothly and painlessly. Documentation you’ll need to provide includes payroll and cash summaries, federal and state employment reports, subcontractor and 1099 forms, relevant tax documents and any other items that will help an auditor have a clear understanding of your business state and revenues.
We can walk you through the process and answer any questions you may have. Call or email us today, and let’s discuss your premium basis and risk exposure and what that could mean for an upcoming audit. Let’s help you prepare so that your audit can feel more like a walk in the park.