Your policy premium is based upon information provided by you (e.g. payroll, sales) prior to the start of your policy term. Because premiums are charged based on actual payroll or sales for the year, carriers are required to verify that your premium accurately reflects the state of your business over the policy term. This entails reviewing the original estimates against your actual payroll and business operations. The review is referred to as a premium audit.
Why do I need to complete an audit?
Prior to the start of your policy, your agent and an insurance carrier underwriter will estimate your premium based on your expected business operations. At the end of your policy period, an in-depth review of your operations is needed to determine if premiums were correctly estimated. The insurance carrier may need to adjust your premiums based on actual business outcomes, given changes that may have occurred in your business. This is required by your policy and a standard industry practice. Your participation in providing requested documentation is essential in order to calculate your final premium.
Is a premium audit optional?
No. Insurance policies and state insurance filings require insurance carriers to conduct annual premium audits of certain business insurance policies (Workers Compensation
, and General Liability
). This is a standard practice for all insurance companies that provide business insurance coverage. While the audit is a routine practice, we understand that it may not be for you. We want your premium audit to go as smoothly as possible so we’ve provided sample premium audit checklists (from Travelers Insurance) for the following: General Liability-Payroll-Based Required Documents Checklist
, General Liability-Sales Based Required Documents Checklist
, and a Workers Compensation Required Documents Checklist
. These may help you organize and prepare necessary information well in advance of your audit. While these particular checklists are from Travelers Insurance, most carriers will require similar information.
Please be aware that effective in 2017 many states adopted audit noncompliance rules which enforce a penalty if your Workers Compensation premium audit is not completed at the expiration of the policy period. Not providing the requested information or documents may result in an Audit Noncompliance Charge, estimated audit and/or cancellation of any coverage in force at the time of audit.
At the end of your policy period you will be contacted by our Premium Audit department letting you know it is time to complete your audit. You will receive an invitation to complete your audit online or in-person. The method by which your audit will be conducted is typically based on premium size, type of operation, and state requirements. In either case you will be advised as to the documents needed for your audit. Your prompt attention and cooperation with the process is important to assure timely processing of your audit results. Please note that a premium audit is required for all Workers Compensation
and most business insurance policies regardless of whether the policy has been renewed, cancelled or moved to another carrier.
Will my premium change as a result of the audit?
After the audit is conducted your premium may be adjusted based on your business activity during the policy period. Business activity is confirmed by a review of your sales or payroll (whichever is applicable), operations, employee classifications, use of sub-contractors and inclusion or exclusion of officers. Providing accurate data ensures you do not pay more (or less) than you should for proper insurance coverage. We know that sometimes the audit process can be confusing. If you have any questions or need additional assistance please contact our office. We’d be more than happy to help!
Source: Travelers Insurance