Understanding a Business Insurance Audit and How to Be Prepared

People often get nervous when they hear the word “audit.” But a business insurance audit is different from those done by the IRS. Most business owners have general liability and workers’ compensation insurance, and both of which are often subject to audits. Because these policy premiums are based on estimated payroll or revenue, audits help to ensure that the premiums reflect a business’s exposure. This is because liabilities can change throughout the year. Lines Insurance & Financial Services wants to help you understand exactly what a business insurance audit is, and how to be prepared for one.  

[Image credit: Pexels]

What a Business Insurance Audit Is and Why It's Important

By definition, an audit is “a formal examination of an organization’s or individual’s accounts or financial situation.” In general liability and workers’ compensation insurance audits, your insurance carrier reviews your payroll records and income statements to make sure your premium is correct based on the actual exposure. 

Policy premiums are typically paid at the beginning of the year. But a lot can change in 12 months, including a change in employees for example. Maybe you needed to hire more employees due to increased demand, or perhaps your company had to downsize. These types of changes can reflect the amount of exposure to a claim your business presents. It’s almost impossible to predict what a company's payroll and revenues will be by the end of the year. That’s where the audit comes in — to assess things like your business’s growth or decline and risk classifications of employees.

After a business insurance audit, if your provider finds that you overestimated your policy needs, you may receive a refund of overpaid premiums. With that, if you underestimated your needs, you may be billed for the difference in your premium costs.

How to Be Prepared

If an audit is required, your insurance carrier will typically contact you shortly after your policy period. When this happens, you’ll want to be prepared. One way you can do that is by understanding the format in which the audit may occur, as this will vary depending on your insurance provider. The audit may be done by phone (expect this to be about a 45-minute call), through an online portal that allows you to upload the necessary documents, an in-person visit (which may take a few hours), or by way of a questionnaire sent in the mail.

Another way to be prepared is by making sure you’ve gathered all of the necessary documentation. This might include payroll and revenue data reports, tax documents, and certificates of insurance, among others. You’ll want to be sure you provide documentation for all of the information that’s requested.

In an effort to avoid significant bills, it’s important to understand and comply with the audit. If you have any questions about the process, you should contact your insurance provider.

Local Insurance You can Trust

At Lines Insurance & Financial Services, we help our clients make sure the rewards outweigh the risks by crafting general liability insurance plans that protect them and their businesses from liability resulting from negligence, property damage, advertising, and personal injury. Contact us today for more information about your business’s insurance policies.