The premium audit process is designed as a service that guarantees you only pay the premium that you owe. Premium audits help to calculate the premium that a business owner truly owes rather than a premium based on the estimated figures provided when the insurance policy was issued.
While this could mean that your premium will increase if information was missing or your actual payroll or sales figures were more than the estimated figures, it could also mean more money in your pocket if those figures were less than the estimated amounts.
Premium audits are typically conducted after the policy expires or is canceled. In addition, the premium audit can provide valuable information about your business operations.
Here are answers to the five most common questions concerning premium audits.
5 Frequently Asked Questions About Insurance Premium Audits
Q: I work alone. The auditor has requested payroll records and because I have no employees, I have no payroll records. Is the audit still necessary?
A: Yes. The auditor will need to verify that you work alone. To do that, they might look at disbursement records, check stubs or income tax returns. They are also required to look for and review your relationship with any independent contractors you used during the policy period.
Q: What can I do to save money on my insurance premiums?
A: If you maintain detailed records, the audit process will run more smoothly and is more likely to work to your advantage. Credits are available on the audit for pay types such as premium overtime, tips, severance pay and third-party sick pay. However, your records must provide a summary of these items by employee and department to allow the credit.
If you’re a contractor, your policy might allow a split of an employee’s wages between different types of jobs.
Records should indicate what type of jobs each employee completed during the policy term and how much was paid.
With this breakdown, we may be able to allow the use of more than one class code. Without this breakdown, State Manual rules require that we must include all wages in the highest-rated class that applies to any portion of your work.
Q: How are the owners classified in the audit?
A: Owners, officers, partners and members can elect or non-elect coverage under your Workers Compensation policy depending on the type of entity insured. The rules vary by state; your agent will be able to provide specific guidelines for your state.
If owners, officers, partners and members are covered under the policy, their wages will be included at either a fixed amount or an actual amount (subject to a minimum and maximum), depending on your entity type, policy type and state of operation.
Owners are classified according to their actual duties. You will be asked to provide a description of each officer’s duties.
Q: I canceled my policy and no longer have insurance with your company. Do I need to be audited?
A: Yes. The purpose of the audit is to review your actual business activity for the time period your policy was still in force.
Q: What gives you the right to look at my books and records?
A: Your insurance policy is a legally binding contract between you and your insurance carrier. One of the conditions of that contract states:
“You will let us examine and audit all of your records that relate to this policy.”
See the policy insert, WC000000A, which was sent with your new business and renewal package, for additional information.
To learn more about the information you will need for your audit, check out this Insurance Premium Audit Checklist.