LET’S TALK ‘INSURANCE AUDITS’
Are you prepared for an Insurance Audit?
Income tax season often brings ‘audits’ to mind and it occurred to me it might be a good time to talk a little about insurance policy audits. They are rarely as painful as an IRS audit, but they can be a real hassle if you are not prepared. So, let’s cover the basics of getting prepared and knowing what to expect from your next insurance audit.
Can Your Insurance Policy Be Audited?
Most liability policies are subject to audit, though not all companies audit all liability policies. For instance, the carriers we most often work with do not audit garage policies for Texas independent auto dealers. Many do and certainly our carriers could change their policies should they discover rating units (employee changes) or any other rating factors are not being regularly reported fairly.
With that thought in mind, it bears mentioning that, among the primary factors involved in determining sales operations’ garage insurance premiums are the number of people employed both on a part-time and full-time basis; the number of hours worked, the number who drive vehicles for business use only, the number who have furnished -24 hour- use of dealer-owned autos, the ages of each driver and the number of non-employee persons who may drive dealer-owned autos.
General Liability policies, as well as workers comp contracts are subject to audit at the end of each policy term. A review of your policy documents will include the following conditions: “Premium or Payroll Audit” alerting you to expect a company audit. By accepting the policy, you have agreed the carrier is entitled to review your records in order to verify the premium charged.
The most common audit period is annual; however, a carrier may choose to conduct an audit at any time, even during an active policy term.
What is an Insurance Audit?
The purpose of a policy audit is to verify the company has collected a proper premium based on the exposure assumed. The premise under which a liability contract is written assigns the initial premium as a deposit premium only, based on estimated sales, rating units and/or payroll; the audit confirms the estimate or determines either an over or under payment. Policy language determines whether or not over-payments are returned; however, under-payments are almost always billed and collected.
There are two types of audits – self-prepared and on-site. The self-prepared audits require only that you provide a written response to whatever information is required, whether it is sales, payroll or employee list. If you promptly comply with the company request, these audits are usually smooth with little conflict or operation upset.
As a further safeguard, I encourage my clients to always send a copy of the self-audit to our office for review before sending it to the carrier. This allows our in-agency underwriter to review the material and to advise the client what to expect as a result of the information provided. The on-site audit involves larger premium accounts, as well as certain industry types.
The initial audit procedure involves a notice that your account has been selected for audit, either on-site or self-prepared. More often than not, the notice comes directly to you from the carrier with a copy to your agent. Sometimes the on-site notice will include the name of the auditor assigned; other times, it will say only that you will be contacted by an assigned auditor.
My experience suggests that insureds who contact their agents once they have heard directly from the assigned auditor fare better than those who don’t. Just reviewing the process and the steps to be taken allow the insured to have a better event.
Steps to a Successful Insurance Audit
There are a few common steps to take once you know an auditor has been assigned to your account.
- Provide a person of contact for the auditor. If that person is not you, be certain they have access to whatever records are necessary, including payroll, employee records, sales figures, tax forms, tax returns, etc. That person should be prepared to provide documentation to support whatever data they give to the auditor.
- Cooperation with the auditor is primary to a good outcome. The auditor does not have a dog in the fight; his/her job is to collect and report data. The better the cooperation, the more accurate the audit and the less hassle for all concerned.
- Once the auditor’s worksheets are complete, ask for a copy. You have a right to the work product that will be sent to your carrier and, reviewing the material will give you a better understanding of how the classifications and payrolls were determined. If you don’t understand, ask.
- If you do not agree with the employee assignments or payroll classifications, immediately contact your agent and/or the carrier and request instructions as to how to dispute the audit results. Do not wait several days, weeks or months; the time to argue your case is when you discover there is a discrepancy between what you feel is correct and what is shown on the audit.
- Finally, when your policy comes up for renewal, talk to your agent to be certain all premium factors are being correctly reported based on your current situation. By making annual adjustments, you could avoid an additional premium invoice.
I encourage you to contact our office with any insurance question and/or need. If we don’t have the answer, we will certainly make every effort to find it.
If you’d like additional information on insurance for your business or you’d like to request a quote, please visit https://mulleinsurance.com/#Insurance-quote or give us a call at 972-681-6297.
As always, I appreciate the opportunity of discussing insurance coverages with you. Please call, e-mail or fax to me your insurance questions and concerns. firstname.lastname@example.org
MULLEN INSURANCE AGENCY, INC
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