Business insurance policies are written on the basic of an estimate of the coverages needed to ensure that the business’ risks are covered. Insurance companies have the option to audit a company to be sure they are insuring the business correctly and for the right price; this option is built into all business policies. Insurance audits are often one of the biggest pain points for business owners.
If a policy is being audited, the business will be notified by mail or email. The audit itself can be completed in multiple ways. It can be done by a phone call, filling out at form online, via mail or by a visit from an auditor. The audit usually happens about thirty days after a policy expires.
Even if the policy is canceled, the business is obligated by contract to still complete the audit. If an audit is not competed, the insurance company may increase the renewal sales or payroll insurance costs based on their experience, or they may cancel the policy outright. If a business fails to complete the audit, even if that company opts not to renew a policy, the insurance company will notify the state of any noncompliance. This may cause any future policy to be cancelled regardless of insurance carrier, and the state may impose fines, too.
Something to keep in mind when preparing for an audit is the policy was written with certain class codes. These class codes will be found on the declaration page. The auditor will be looking to see how the business performed within those codes. Sometimes an auditor will find that a business is doing work outside of the codes; this may cause an adjustment. Other adjustments may occur if payroll or sales are different than reported. Seldom does an audit come back exactly as written or renewed. Keep in mind that auditors do make mistakes, and an audit maybe appealed. In fact, many insurance audits are appealed.
When the audit is being performed, auditors do look carefully for subcontractor use. A business is smart to obtain proof of insurance from all subcontractors ahead of time to avoid paying an extra insurance expense. There may still be a rise in cost of insurance for subcontractors, but it will be lower if the business has a certificate of insurance to prove coverage.
The best advice to reduce the pain of these audits is to keep clear payroll records that demonstrate what employees do. The insurance agent who wrote the policy will be a good resource to clarify any issues brought about by the audit. Think of the insurance agent as a partner in the process.
(Article By: Virginia (Gin) Kinneman, Agency Owner of Kinneman Insurance)