Imagine you own a small but successful landscaping company. You enter your office on a typical Tuesday morning and take that first sip of coffee. You log on and open your email, as you always do. As you scan your inbox for new emails, the following subject line grabs your attention: Insurance Premium Audit Needed.
The main word you focus on is audit. Your heart and mind start racing. You think, “Audit? Wait, did I do something wrong?”
Breathe easy. Insurance premium audits are normal.
What is an insurance premium audit?
An insurance premium audit is a thorough examination of a business’s financial records to figure out the right premium for its insurance coverage. This process makes sure businesses are paying premiums that accurately reflect their operations, revenue, and risk levels. These audits allow insurance companies to adjust premiums based on real-life exposure rather than estimates made at the start of the policy term.
Several types of business insurance policies require audits, including workers’ compensation, business auto insurance, and general liability. These policies are often subject to fluctuating risks and revenues, making it important for insurance providers to reevaluate premiums based on the most current financial data. For example, if a construction company’s workforce and projects increase significantly over a year, a new premium is needed to match the current risk profile.
While annual and semi-annual audits are most common, premium audit frequency varies based on business type, policy terms, and risk exposure.
Who conducts insurance premium audits?
Insurance premium audits are usually conducted by the insurance company itself or by an independent auditor hired by the insurer. The auditors will look at various financial documents like payroll records, tax returns, and other relevant business information to ensure accuracy. Once the audit is complete, the insurer will make any adjustments to the premium, which could result in a refund or an increase in the premium for the next policy period.
Preparing for an insurance premium audit
Preparing for an insurance premium audit can seem intimidating, but with the right approach, you can navigate the process smoothly and even save some money. Here are some tips:
- Organize your financial records: Keep a clear and comprehensive file system that includes all relevant documents like payroll records, sales reports, and prior insurance policies.
- Communicate with auditors: When the audit is scheduled, reach out to clarify any requirements or expectations. Establish a point of contact and make sure your finance team is available to respond to questions promptly.
- Approach the audit as an opportunity for cost savings: Use the findings to assess your current coverage and identify areas where adjustments may lead to reduced premiums. For example, if the audit shows your business has experienced changes in operations, you may be eligible for lower rates.
What to expect during the audit process
The audit timeline can vary depending on the size and complexity of your business, but most audits take a few weeks to complete. Initially, you’ll receive a notification from your insurance provider detailing the dates and the information needed.
As mentioned above, getting organized ahead of time is key. Having information sorted and easily accessible will speed up the process and minimize any misunderstandings.
However, challenges can arise during audits. One of the most common issues is discrepancies between reported payroll figures and actual figures, which can lead to an unexpected change to your premium. Additionally, if a business struggles to provide all the necessary documentation on time, the process will be dragged out.
Being prepared goes beyond the premium audit. Contact a local agent to ensure your business is prepared for the unexpected.
