Take the Mystery Out of Premium Audits

written on December 22, 2008 by Francine Price

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As 2008 draws to a close one's business may have already, or is preparing to renew its insurance coverage.  Premium audits continue to be a source of misunderstanding and consternation for many businesses.  Premium audits are a means of obtaining information to determine the actual payroll, sales, or other variable information that is used to calculate initial insurance premiums. Premium audits are a standard industry practice and insurance companies have the contractual right to audit the policies they write. Insurance policies subject to premium audits include workers compensation and general liability. 

Audits can be done via phone, mail or on premise. To help avoid audit mistakes that can lead to higher insurance premiums, here are some suggestions:

Before the audit:

(1) Make a thoughtful decision about who from your company will be best able to work with the auditor.

(2) Review prior years' audit billing statements and auditor's work sheets.

(3) Gather pertinent accounting records, such as payroll journals, sales journals, cash disbursement journals, general ledgers, social security reports, and state unemployment tax returns.

(4) Review payroll documents to make sure that the records include breakdowns of wage types by employee, department and class code.

(5) If subcontractors or independent contractors are used, make sure to have on file certificates of insurance documenting that they have their own workers compensation and general liability insurance.

For an on-site audit, when the auditor arrives:

(1) Request that the audit take place on-premises so that all pertinent records are readily available.

(2) Ask questions during the audit to clarify areas you do not understand.

(3) Before the auditor leaves, ask for a hard copy of their specific findings.

After the audit:

When the audit billing statement is received, review it carefully and compare it to the original policy.  Note all changes and discuss any questionable areas with the auditor.  Keep in mind that as a result of a premium audit, premiums may increase OR decrease.  It works both ways.  For a successful year one may have additional premium owed.  Likewise, in a challenging year, one may receive a premium return.