Insurance Audits

The insurance audit is a process common to every insurance policy (carriers have the right to audit any and every policy by virtue of policy conditions). The audit enables the carrier to determine how much exposure they have actually covered over the policy term. 

It all depends on the type of operations and size of the annual premium. Some carriers will waive the audit requirement for smaller accounts or conduct only every 3 years (the standard is annually). However, at the expiration of your coverage, you will be contacted by an auditor (or audit service) approximately 30 days from the expiration. The auditor will ask you for the preferred location. This is generally your office or accountant's office. However, the audit should take place where your records are stored. 

Prior to the audit, log-on to CSR 24 or contact your agent to review your declarations from the policy being audited. Exposure is based on either payroll, sales, or area. The declaration page will clearly state the estimated (and written) exposure for the policy being audited. However, it is important to ask what is subject to this exposure. We can assist you in determining the maximum payroll for auditors, excluded payroll or sales, and sub-contractor management. 

Payroll records (make sure it reflects the different classes of operations), general ledgers, payroll journals, check stubs, profit and loss statement, RT-6's, 941's, 1099's, officers and officers' payroll information, overtime records, copies of exemptions, amounts paid to sub-contractors- with description of service, and certificates of insurance for sub-contractors. 

It is important to note that if you underestimate your exposure, premium will be charged for the additional exposure. This premium will be due in full.  Carrier's do not allow outside financing of the premium (some carriers will provide limited payment terms). If the audit is not accurate, you can IN WRITING dispute the findings. However, this written dispute must include documentation validating your dispute (ie payroll records verifying the wrong payroll numbers). It is important to have your agent assist you with the basis of any dispute or validity of your dispute of audit findings. 

Auditors LOVE detailed records. Make sure you have your records prepared and organized prior to the arrival of the auditor. The more you "hunt and search" for files, the more concerned the auditor becomes. Additionally, review your policy conditions and exposures at binding to ensure you know your exposures and the certificate requirements for your sub-contractors. You should also review the "earned" (amount non-refundable) premium conditions of your policy. It is important to note that the terms and exposures of your policy cannot be disputed at audit (this must be done when obtaining the coverage).