Commercial Insurance Audits: What to Expect and How to Prepare

When you hear the term "audits," you typically think of lengthy and time-consuming tasks requested to ensure the accuracy of your records. Rest assured, commercial insurance audits are not nearly as frustrating as one might think. In fact, they benefit you and your business by verifying that your policy and premiums best reflect accurate pricing for your exposures.

What to expect from an audit

Providers use insurance audits to determine how much risk they are insuring, specifically as it relates to general liability and workers' comp premiums.

• Commercial General Liability is essential business coverage that protects you and your business from claims and lawsuits against you that might occur in the course of operating your business.
• Workers' Compensation protects both employees and businesses. If an employee is injured on the job, the policy will pay for medical care, lost wages, and death benefits.

When the policy term begins, we use factors like sales revenue and payroll to help determine the estimated premium for your policies. Depending on the results of the audit, you may see an adjustment in the premium (higher or lower) based on your actual exposures or performance.

The goal, however, is to have a $0 difference in your premium after an audit.

How COVID-19 affects your audit

Additionally, it's important to note the effects COVID-19 could have on a commercial insurance audit as the pandemic continues. Have you seen a change in your sales revenue in the last year? What about an increase or decrease in payroll? As you prepare for an upcoming insurance audit, consider what changes you've noticed across your business and how they could affect your premium.  For a deeper dive on COVID and audits, check out our blog from July 2020.

How to prepare for your audit

An insurance audit typically occurs two or three months after the policy expiration. You will likely see an adjustment in premium if there have been any significant changes in ratable factors, such as, sales, payroll, employee count, students, etc. Any additional premium is due within 30 days after an audit has been completed. To smooth out cash flow, you don't have to wait for an audit to begin preparing - there are several ways you can help manage your policy premium:

• Premiums are determined by the nature of work your employees are performing and the projected amount of sales revenue your business anticipates during coverage. Be sure to keep accurate records of your financial statements, payroll, employee numbers, and their type of work.
• Throughout the year, compare the payroll and sales revenue provided to rate the policy against your actual numbers. If you notice any large swings, reach out to your agent ahead of time to have the policy adjusted before an audit. This communication helps to avoid significant premium adjustments later.
• Certain insurance companies may offer billing plans to help pay as you go, smoothing cash flows and taking fluctuations in payroll into account to make premium adjustments before an audit is necessary.
• Want to lessen the potential impact of an insurance audit? Use the most accurate payroll and sales revenue data when creating the policy. If you're lowballing these figures, it could lead to significant changes to your general liability and workers' comp premiums in the long run.
• If you use subcontractors, make sure to collect certificates of insurance and have written agreements on file. Be prepared to present them during the audit. Otherwise, those subs may be treated as employees which means your workers' compensation and general liability premiums will increase.

We're here to help

Speak to our insurance specialists today for a free review and quote for commercial general liability or workers' comp policies. We have the flexibility to find you the right coverage and competitive premiums with several top-rated providers. To get started, contact Keller-Brown Insurance Services today by visiting www.keller-brown.com/contactus or calling (717) 235-6891.