Insurance Audits for businesses can be scary. Be prepared.
Understanding what an insurance audit is can help you avoid future costs that your business may not expect. An audit performed by an insurance company will most likely occur anywhere from one to three months after the expiring policy.
An auditor will most likely ask you the following questions, so be prepared to answer them.
Premiums for general liability or GL policies are usually based off annual revenues, payroll, or sometimes square footage of the building being occupied. An audit on a general liability policy will include some of the following questions. Generally they will ask you for a description of your operations. If they learn that another job description has been added to your business operations since the inception of the policy, then another class code may be generated. This class code depending on its overall risk factor may result in higher premiums. A class code in the insurance industry is simply a number associated with duties being performed. For example, if at audit it has been determined that a church also has a daycare operation, you may be subject to additional premiums.
This can be said for workers compensation audits as well. Job duties determine the class code. For example, a janitor would have a different class code than someone doing clerical duties. The janitor will take a higher rate due to the risky nature of the job duties. Therefore, at audit, if they determine you are doing roofing as well, but you failed to include this on your application, you can expect additional premiums.
Were any subcontractors used? It is important to know that the burden of proof remains with the insured to properly classify subcontractors. If you answer yes, be prepared to show certificates of insurance obtained by the subs. If not, you may have additional premiums. The following should be kept on file.
• Name of subcontractor
• Project they were involved with
• Type of work performed
• Insurance coverage: Adequate or inadequate
• Total cost
• Amount included as payroll