Surprise endings are not always welcome, especially when it comes to premium audits. Your agent should play a key role in facilitating the audit by helping you understand the reasons for the audit, the audit process, and the preparations that can be made to help the audit go smoothly and minimize audit mistakes.
A premium audit is a determination of the ACTUAL insurance exposures for the coverages you have based on an examination of your operation, records and books of account. When your policy is issued, your premium is ESTIMATED based on the information provided at that time. An audit establishes the CORRECT premium base for your insurance coverage by verifying actual exposures. After the audit, an adjustment will be made to the premium that was estimated at the beginning of the policy term.
KEEPING GOOD RECORDS MAY SAVE YOU TIME AND MONEY!!!
You may be eligible for allowable credits based on the classification rating rules but you will need to provide the necessary records and detail to take advantage of the credits. Payroll is the most common basis for insurance premiums and INCLUDES any money paid for services, such as:
- Vacation, Holiday or Sick pay
- Wages or Commissions
- Payments for piece work
- Profit sharing plans
- Value of board, lodging
- Overtime (Regular Portion Only)
- Tool allowance
- Statutory payments
- Other substitutes for cash
- Tips & other gratuities
- Employer contributions to group pension plans
- Severance pay (except for accrued vacation time)
- Reimbursements for business expenses such as automobile, meals, lodging, etc…
- Safety awards/bonuses (this varies between carriers and needs to be approved at policy inception)
Verify Certificates of Insurance for Subs & Independent Contractors!!
Certificates of Insurance should be kept for ALL contract labor used during the policy period. Certificates of insurance must reflect that General Liability and Workers Compensation coverage was in place for the contractor during the full policy term. The insurance carrier may include contract labor with the audit payroll in the absence of valid certificates of insurance (Resulting in additional premium due!).
For any additional questions on this topic please give Jeannette Blanton Insurance Agency / A Higginbotham Co. a call. If you are dealing with an audit issue with your current carrier and are left with many unanswered concerns, please contact us today for a complimentary review.