PRODUCTS & SERVICES

Premium Audit FAQ

Q:  What is an Audit?
A:  A report of collected information of an insured’s operation and accounting records used to determine the actual insurance exposures for the coverages provided.

Q: Why and when is it necessary?
A: The original premium on the policy is an estimated premium. The final audit determines the actual premium. When actual exposures differ from the estimated exposures, an adjustment must be made to the premium of the expired policy.

Q: What insurance coverages require an audit?
A: The following insurance coverages require an audit:

  • Workers’ Compensation
  • General Liability
    – Premises/Operations Liability
    – Products Completed Operations
    – Independent Contractors
  • Garage Liability
Q: How should your records be kept?
A: Proper record-keeping will permit the auditor to apply any allowable credits to your final premium. When the auditor requests payroll information, this includes remuneration. Remuneration means money or any substitute for money, and includes the following:

Wages
Commissions
Bonuses
Overtime Pay
Holiday Pay
Vacation Pay
Sick Pay
Tips
Payment of Piece Work
Profit Sharing Plans
Statutory Payment
Tool Allowances
Value of Board, Lodging
Store Certificates
Other $ Substitutes


Overtime

In most states, the amount paid in excess of straight time pay can be deducted if the excess can be verified in your records. You must maintain your records to show overtime pay separately by employee and in summary by classification of work.

Subcontractors
Generally, a division of an individual employee’s payroll to more than one classification is not allowed, except for construction or erection workers. In these cases, the payroll may be allocated to each type of work performed if proper records are kept and allowed by the state and rating bureau. Your records must show the number of hours and amount of payroll for each type of work. Without an adequate breakdown, the full payroll must be charged to the highest-rated classification.

Division of Payroll
All subcontractors that you use must provide current Certificates of Insurance proving they have Workers’ Compensation insurance for the time that work is performed. If the certificates of insurance are not available for review, the subcontractor amounts must be treated as payroll and appropriate premium charges will be made.

For General Liability, it is necessary for contractors to secure a Certificate of Insurance from each subcontractor they hire. Without a Certificate showing limits of liability of $500,000 or more, it will be necessary to classify these subcontractors as employees.

Q: Who conducts the audit?
A: If the conditions of your policy require a physical audit, a Premium Auditor will contact you for an appointment. The Premium Auditor will examine and audit all records that relate to your policy.