Insurance 101 – Preparing for Your Premium Audit


Your insurance carrier has contacted you – they
want to conduct a premium audit. You’ve paid your premiums on time! What could this possibly mean? The amount you pay for your insurance should
reflect your business operations. Many policies are based on the best information
you can provide at the time your policy is issued, but that information could change
over the course of the policy. You may end up not paying enough, or paying
too much, for your insurance. This is where a Premium Audit comes in! Your insurance company will conduct a Premium
Audit after your policy term expires review your actual business and calculate your final
premium. Depending on the size of your operation, an
auditor may be able to gather the information they need over the phone, or you may be asked
to fill out and return a simple form online or through the mail. For larger operations, an auditor may prefer
to visit your office and review your records with you. This may take an hour or two of your time
depending on the type of business and whether or not there have been changes in your business
operations. The auditor will let you know prior to your
appointment exactly what information they will need to review. Having all the requested information ready
prior to the meeting will shorten the process. They may ask to review:
Accounting records including payroll, journals, disbursements, invoice reports, sales reports,
vendor reports, general ledgers, Social Security reports, state unemployment forms, or other
tax reports. You may also be asked for information about
the business entity, ownership, corporate structure, and the business operations. Since an audit can encompass such a vast array
of data, here are some tips for preparing: First, decide which staff member is best able
to work with the auditor. This should be someone familiar with the work
done by all departments and employees and is knowledgeable about the records needed
to complete the audit. Review the appointment letter and prior years’
audit billing statements to familiarize yourself with the data the auditor will be reviewing. Gather all pertinent accounting records. Review payroll documents to make sure that
they include breakdowns of wages by employee, department and class code. Breakdowns should also include overtime pay
and tips, if applicable. Verify that you have certificates of insurance
on file for any subcontractors you may have used. Be sure that the documents show that the contractors
have their own workers’ compensation and general liability insurance. Lastly, ask questions during the audit to
clarify anything you do not understand. Maintaining detailed payroll and sales records
for the policy period is the best way to ensure that the audit process goes smoothly. If those records are organized, the audit
can be completed with minimal effort. Don’t let a premium audit be a complicated
process! If you have questions regarding the premium
audit process, contact your independent agent right away!

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