When your business takes out a commercial insurance policy for items like worker's compensation, liability or an umbrella policy, the insurance company estimates your premiums. The company bases these estimates on facts about your business and the average premiums of similar businesses in your field. But the only way to determine your actual premium is to audit your business after the policy term is over to look at your actual usage of the policy. Then, the company adjusts the premium up or down and either assesses an additional charge or issues a refund.
Depending on the type of policy you purchased, the insurance auditor will look at written records of your business during the year. If the policy is for worker's compensation insurance, the auditor will look at your payroll records, as well as records of workplace accidents or injuries. For liability policies, the auditor may look at the types of jobs you did, reports of any accidents, and whether or not you employed outside contractors for work during the year.
Types of Audits
Insurance audits may be in-person, on-site audits at your place of visits, paper audits or audits conducted by telephone. Some companies will alternate, performing an in-person audit every other year and paper audits during the years in between. For a paper or telephone audit, the auditor will ask you to send copies of certain documents to his office for review. You may also be asked to complete an audit questionnaire, or the auditor will ask you questions over the phone. For an in-person audit the auditor will come to your place of visit and view documents and ask questions in person.
Preparing For the Audit
The insurance auditor will provide you with a list of paperwork she needs to see. This may include payroll records, copies of the insurance carried by any contractors you used, accident reports, employee records and financial statements from your business. The request will specify the period of time the auditor will be reviewing. Having these records ready when the auditor comes to your business will speed up the auditing process and ensure the auditor makes an accurate report.
After the Audit
After the audit, the auditor will issue a report and the insurance company will adjust your premium up or down. You have the right to review the report and to question any premium adjustment. The agent will explain to you why the adjustment was made and you may appeal the decision if you can provide evidence that backs up your claim that an adjustment was incorrect. For instance, if you can show the auditor filled in the incorrect number of employees or wrote down the wrong figures for hours worked or showed you didn't have copies of insurance policies for sub-contractors when you did have these copies, you can make an appeal.