When you have a business insurance policy, the premium isn’t always set in stone. It may be an estimate based on your previous sales or other activities. If things change, you may have to pay more for your business insurance, or you could get a refund. A business insurance audit is when the insurance company figures all of this out.
What is a Business Insurance Audit?
A business insurance audit is when an insurance company reviews your books and records to confirm the pricing you should receive. This could include profit and loss statements, breakdowns of sales by line of business, tax documents, information about contractors and subcontractors, certificates of insurance for your contractors and others, and similar records. Your insurance company may also ask to speak to the owners and officers or have them describe your activities in writing.
What Happens at the End of a Business Insurance Audit?
At the end of a business insurance audit, you’ll receive a revised premium. If your activities increased or were riskier than you expected when you originally applied for or renewed your policy, you may receive a premium increase. If your business decreased or focused on less risky activities, you may receive a partial refund or discount on the next period. If you disagree with the changes, gather any supporting documentation, and contact your insurance company.
Do I Have to Comply with a Business Insurance Audit?
A business insurance audit is part of the contract you agreed to in your insurance policy. You have to provide the insurance company reasonable access to conduct an audit, as described in your policy. If you refuse, the insurance company may cancel or non-renew your policy, and you may still be liable for any additional amounts you owed. Also, the insurance company may not honor any claims you make if you don’t document that you paid the proper premium.
Why Would I Want a Business Insurance Audit?
A business insurance audit makes sure you’re paying the right amount for insurance. Not every business qualifies for fixed insurance pricing, and those that do may find that a policy that uses an audit is cheaper. Remember that your premium could go down after a business audit. If your premium goes up, it often means that you’re making more money than you expected, and the extra cost covers the increased activity.
What Types of Businesses Use Policies with Business Insurance Audits?
Larger and more complex businesses, as well as those with varying volumes typically choose business insurance policies that use an audit to determine pricing. What gets audited and how the insurance company determines pricing varies based on the type of policy and business activity. These are some of the more common.
Commercial Liability Insurance Audits
General and specialized commercial liability audits are typically based on your sales volume since. Sales volume typically best matches your activity level and accompanying risk. Insurance companies may also use payroll, square footage, or the number of locations if you’re rapidly expanding or have seasonal or cyclical variations.
Workers Compensation Insurance Audits
Workers compensation insurance audits typically depend almost entirely on your payroll. This includes the number of workers, how many hours they’re working, and the job class of each worker.
Liquor Liability Insurance Audits
If you have liquor liability insurance, the insurance company may want more information about your operations. For example, are you operating as a restaurant, or are you a bar? The insurance company may look at how much of your total sales come from alcohol, non-alcoholic beverages, and food. They may also ask for a description of the environment of your establishment and your customer policies.
Cargo Insurance Audits
If you have cargo or freight insurance, this is typically a very straightforward question of your shipping volume and the value of the goods you ship.
When Does a Business Insurance Audit Happen?
Your business insurance audit will tell you how often an audit will happen. This may be monthly, quarterly, annually, or after a specific triggering event. It may also be on an ongoing basis or only early in your policy.
When Do Premium Changes Take Effect?
Some premium changes may apply retroactively, and you may need to pay extra or receive a refund for past periods. Others won’t take effect until the next coverage period. Check your policy for details.
What’s the Best Way to Handle a Business Insurance Audit?
First, try to estimate as accurately as possible when you initially give your insurance company information. That will reduce the chances of a surprise change to your premiums.
Next, make sure you understand how your insurance company calculates your rates. This will allow you to predict changes to your premium so you can plan ahead. It also helps you know what information you need to maintain and prepare. Missing or incomplete information could lead to you paying more if the insurance company has to guess at your risk.
Finally, have a designated person who works with your insurance company. They should update your information any time your business has significant changes and assist the insurance company during each audit.
Need Help Understanding Business Insurance Audits?
If you need help understanding how business insurance audits work or finding the right business insurance policy, talk to an independent insurance agent at Dave Mohr Agency. Contact us now with your questions or to set up an appointment.